Want to bag some income? A buy-write in upscale and health conscience grocer Whole Foods Market (WFM) continues to look like a breadwinner in the face of plenty of company negativity and less-than-fruitful conditions in the broader markets.
Whole Foods Market faced a bearish ballyhoo Monday over 1,500 layoffs, and it must contend with ongoing investor angst over competition from Kroger (KR), Fresh Market (TFM) and Sprouts Farmers Market (SFM) … not to mention the recent product pricing scandal at “Whole Paycheck.”
Despite these troubles, WFM stock is looking more and more like a prime candidate for nibbling at with a buy-write strategy.
Sure, you could side with the bearish arguments. But WFM stock remains backed by a company with “first movers” advantage. And the fact is, first-to-act positioning and Whole Foods brand recognition are likely stronger than many are giving them credit for.
WFM stock also looks like a value proposition as Whole Foods maintains a healthy balance sheet and has shown it’s not going to sit idly by and let lesser upstarts or established grocers simply steal market share as organics and healthier living goes increasingly mainstream.
In fact, Monday’s layoffs move was about allowing Whole Foods Market to better access technology upgrades and offer improved pricing for its customers. And at the end of the day, with WFM stock off just 1.13% during a sizable price route by the major averages, the action could have been a lot worse.
Whole Foods recently announced its 365 by Whole Foods Market stores in urban markets. The downsizing is to gain stronger traction with the key Millennial demographic — who may also want to consider shopping for a bargain in WFM stock, between the fresh mango and grass-fed, cage-free chicken.
Whole Foods Stock Weekly Stock Chart
Back on August 24, I penned an article on WFM stock and made the case for shares of Whole Foods Market nearing a bottom within a technical support zone on the monthly WFM stock chart.
The account still holds true, as WFM stock is wedged between its 50% Fibonacci level near $34.50 from a 2008 cycle low and lower supports in the $27 to $28.25 area.
The lower support zone in WFM stock consists of the 62% level from the same monthly Fibonacci cycle and a 100% mirror or two-step pattern wherein a the AB leg is equal to the lower and second CD leg in dollar terms.
WFM stock finished Monday’s treacherous session at $30.75 — down 1.13%. That’s marginally lower than at our last discussion, but volatility has been relatively subdued and allowed more of a lateral trading range to take hold as shares move firmly midway into the support zone of $27 to $34.50.
In contrast to WFM stock, the broader indices are still feeling their own comeuppance in a big way. It’s true the major markets are still above the August 24 “mini flash crash” low, but price action has been incredibly volatile and a likely headache for all but the most agile bears and bulls.
Altogether, the combined action has put WFM stock into a position of relative strength and reinforces the idea that a quieter bottom is developing within the described technical zone.
The price action also reinforces approaching WFM stock with a buy-write because shares look to bottom, rather than go straight up or down.
WFM Stock Buy-Write Strategy
Last month’s buy-write in WFM stock did quite well into expiration. A discussed September $33 buy-write packaged for $31.11 compared to an expiration stock price of $32.07 in shares of WFM.
Currently and with shares a bit lower at $30.75, I like the Weeklies October 30 $30.50 buy-write for $29.60 or better. The package consists of selling the call for a mid-market credit of $1.15 and purchasing WFM stock for $30.75.
This position allows the trader to add an initial monthly income stream of nearly 3% if shares of WFM stock simply sit through expiration and works to reduce the trader’s cost basis over time if a roll strategy is implemented.
For traders taking the longer-term view of wanting to hold this overall healthy, dividend paying stock and do so while reducing the risk of holding shares in a constructive manner, the buy-write in WFM stock remains attractive and certainly sweeter than asparagus in water.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
