Speculation Heats Up on Kraft Foods Inc. Ahead of Earnings

Option volume is heavier than usual today on Kraft Foods Inc. (KFT), as the company prepares to release its third-quarter earnings after today's close. However, speculators are shying away from front-month strikes -- the day's most active options so far are the December 25 put and the January 2010 25 put.

Specifically, KFT's December 25 put has seen 3,064 contracts trade on open interest of 9,391. A block of 2,438 contracts crossed the tape earlier near the ask price, suggesting that new bearish bets are being added here today. Meanwhile, the January 25 put has traded volume of 2,200 contracts on open interest of 17,185 contracts. Both of these strikes are currently out of the money by a couple of points.

Generally speaking, traders have favored calls over puts on KFT in the weeks leading up to tonight's earnings report. The stock's 10-day International Securities Exchange (ISE) call/put volume ratio stands at 2.63, in the 59th annual percentile -- just on the bullish side of neutral. However, after a 36% jump in short interest during the past month, it's possible that this apparently optimistic option activity is simply the result of hedging by bearish bettors.

On the charts, KFT is mildly lower as its appointment in the earnings spotlight approaches. The stock is currently pinned between support at its 10-month moving average and resistance from its 20-month trendline. This narrow channel has confined the equity's movements since July.

Ahead of the company's third-quarter report, analysts are expecting a profit of 48 cents per share from the food firm -- up modestly from last year's earnings of 44 cents per share. KFT has a respectable history of exceeding consensus expectations, having topped Wall Street's best guess in three of the past four reporting periods.

 Email to a Friend

 Del.icio.us

 Facebook

 Reddit

 Newsvine

 Digg

 Mixx