Traders open a can of puts
- CPB up nearly 17% in 2022
- Shares rallied roughly 9% in past eight days
- Big put trade hit the tape on Wednesday
Traders who had overlooked Campbell Soup (CPB) despite its double-digit percentage gain this year may have taken notice of the stock yesterday when it appeared on the LiveAction scan for high put-call ratios:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Put volume was nearly 45 times call volume in early trading, with 3,200 of the November monthly $47 put changing hands by noon ET—more than 100 times the volume in any other option at that point in time.
Since the November $47 puts already had open interest (OI) of 2,800 contracts on Wednesday, it’s possible a good portion of yesterday’s volume was a liquidation of existing positions. But likely not all of it, since the volume was 400 contracts higher than the OI. That means at least some of the activity represented a trader (or traders) getting into the market. (Two big trades—roughly 1100 and 1400 contracts—accounted for most of the volume.)
The activity in these puts is interesting not only because the strike price is close to the Street’s average analyst target of $47.881 (around $3 below where the stock was trading yesterday), but also because of CPB’s recent price action. After an eight-day, 9.6% price surge, yesterday morning shares traded within one cent of the six-week high they hit last Friday ($51.17) before retreating intraday:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
In addition to highlighting the up-and-down nature of CPB’s rally this year, the chart shows the stock is relatively close to the year-to-date intraday and closing highs it hit in May and August, respectively.
Some traders would simply anticipate a price zone defined by prior highs to act as potential price resistance—turning back further gains, at least temporarily. Taking things a step further, some quant-leaning types may have discovered that rallies like the one CPB made over the past eight trading days have been followed by more weakness than strength over the next one to four weeks—the stock was lower a month later 75% of the time, although most of the selling occurred in the first five trading days.2
Note: CPB November monthly options expire on November 18, before the company is currently scheduled to announce earnings.
Market Mover Update: On Wednesday the US 10-year T-note yield topped 4.1% for the first time since July 2008.
Today’s numbers include (all times ET): Weekly Jobless Claims (8:30 a.m.), Existing Home Sales (10 a.m.), Leading Economic Indicators Index (10 a.m.), EIA Natural Gas Report (10:30 a.m.).
Today’s earnings include: Dover (DOV), Fifth Third Bancorp (FITB), AT&T (T), American Airlines (AAL), Union Pacific (UNP), Quest Diagnostics (DGX), KeyCorp (KEY), Dow (DOW).
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1 TipRanks. Campbell Soup Stock Forecast & Price Target. 10/19/22.
2 Figures based on Campbell Soup (CPB) daily price data, 1973–2022. Rallies “like the one CPB made over the past eight trading days” refers to a day that 1) makes a high that is no more than $0.04 below the highest high of the past 20 trading days, and 2) is at least 9% above the closing price eight trading days ago (281 examples since February 1973). Supporting document available upon request.