KR Analysis

The Kroger Co. (KR)

Update 11/30/2017: KR announced earnings of $0.4139 per share, beating analysts’ consensus expectation of $0.40. Share prices rose by $3.29 in early trading before the opening bell and then at the open went into a decline that lasted the day. I exited early, near the peak., at 86.1% of maximum potential return.

Shares rose by 11.8% during the one-day lifespan of the position, or a +4,301% annual rate. The options position produced a +620.0% return (not a typo) for a +226,300 annual rate (also not a typo).

From the pre-earns close to the close of the first post-earns session, the price rose by $1.48, well within the post-earns moves of the last four quarters.

Eleven analyst forecasts had implied a positive earnings surprise, with a Zacks earnings surprise predictor score of 3.33 in the context of a neutral longer-range rank of 3.

The trend metrics were mildly bullish, with an average directional index (ADX) of 25.88, a +DI of 32.38 and a -DI of 12.43.

KR publishes earnings on Thursday before the opening bell.

I shall use options that trade for the last time 16 days hence, on Dec. 15.

Implied volatility stands at 41%, which is 3.8 times the VIX, a measure of the volatility of the S&P 500 index.

KR’s IV stands in the 75th percentile of its annual range and the 92nd percentile of its most recent broad movement.

The price used for analysis was $24.27.

I shall structure the position as a bull put spread because of a positive earnings surprise predictor from Zacks and a positive trend.

Premium: $0.36 Expire OTM
KR-vertical Strike Odds Delta
Long 23.00 80.1% 17
Break-even 22.36
Short 22.00 60.3% 36

The premium is 36% of the width of the position’s wings.

The risk/reward ratio is 3.1:1.

The leeway between the break-even point and the current price is $1.91.  The biggest immediate move after each of the past four earnings announcements was $5.72, and the average was $2.47. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.55.

The bid/ask spread is 18.82%.

Decision for My Account

I have entered a position on KR as described above. The stock at the time of entry was priced at $24.28.

By Tim Bovee, Portland, Oregon, November 29, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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