A volatility crush has made short-term K options attractively priced
Kellogg Company (NYSE:K) has had a rough week. The cereal maker gapped 5.6% lower yesterday following the company's fourth-quarter earnings loss that was attributed to higher Brexit costs -- though Kellogg beat estimates on an adjusted basis. Then, four brokerages issued bear notes this morning, including Credit Suisse, which cut its K price target to $54 from $57.* Amid these struggles, puts have surged in popularity today.
More specifically, over 4,000 K put options have changed hands today -- five times the average intraday amount and two times the number of calls traded. Most popular by far is the January 2020 42.50-strike put, where it looks like new positions are being opened. Also popular are the 55 strikes in the March and February series, which happen to be the stock's top open interest positions.
On the charts, Kellogg stock earlier tagged an annual low of $54.83, and was last seen down 1.7% at $54.90. The stock's technical struggles this week were sparked by a rejection at its 50-day moving average -- a trendline that contained Kellogg in October -- and the shares are now below their year-to-date breakeven point.
In the wake of this week's earnings events, volatility expectations have imploded. The stock's Schaeffer's Volatility Index (SVI) of 23% ranks in the 16th annual percentile, suggesting short-term options are relatively cheap at the moment, from a volatility standpoint.
*Editor's Note: This article has been updated to remove a reference to Pacific Square's position on Kellogg that was improperly sourced. We regret the error.