Event: WFM reports fiscal Q3 results tonight after the close, the options market is implying about a 7% one day move, which is basically in line with the 4 qtr avg of about 7.5%, and shy of the 8 qtr avg of about 8.5%.
Price Action Technicals: WFM is down 18% on the year, and down 28% from the 52 week highs made in February.
The two year chart below shows the stock straddling what is shaping up to be fairly important near term support at $40:[caption id="attachment_55743" align="aligncenter" width="600"] WFM 2yr chart from Bloomberg[/caption]
The gaps in this chart are amazing, it seems that investors routinely get off-sides on the stock.
Today’s Options Action: There were two notable purchases of upside calls, first when the stock was $41.36 a trader paid 76 cents for 2,000 Sept 45 calls, and then about two hours later just before 2pm when the stock was $41.31 a trader paid .39 for 5,000 of the Aug 7th weekly 46 calls to open. Both trades are well out of the money, and would seemingly play for a gap fill.
My View: the May gap lower was following disappointing Q2 results and the revelation that the company would introduce a new store concept next year geared towards millennials (LOL).
The stock has consolidated since may in the low $40s, and frankly acts dreadful. But with sentiment as poor as it is, and the implied move looking fair I can see why a defined risk play off of technical support would make sense, I am not sure I would chose the strikes listed above as they are a bit far out of the money resembling lotto tickets.
Oh and while this stock is considered a high valuation consumer discretionary stock, it is now trading at its lowest P/E multiple of the last 5 years. Consensus is calling for 10% earnings and sales growth both this year and next:[caption id="attachment_55744" align="aligncenter" width="552"] WFM 5yr P/E from Bloomberg[/caption]
If I were to play for a bounce off of support in line with the implied move I would likely buy the July 31st 42/45 call spread for 80 cents (stock reference $40.70). Risk 80 cents to possibly make up to 2.20 if the stock is up 10%.
I lack any conviction though and a miss and guide down could cause a nasty break of the aforementioned important support. If that was my view I might consider the July 31st 40/36 put spread for 1.10.