Shares of Whole Foods Market (WFM) traded to a fresh 52-week low of $28.07 on Monday, and the company is scheduled to announce its latest earnings figures following Wednesday’s close. The 52-week high is at $57.57, and shares are down nearly 50% from that peak.
The five-year chart shows that there is risk to $27.50-$25 if the company disappoints Wall Street with its numbers or forecast. A beat-and-raise quarter, however, could have shares easily rebounding past $30 towards $32.50.
Analysts are expecting the company to earn 40 cents a share on revenue of $4.81 billion. The high estimate is at 45 cents a share on sales just south of $5 billion. The low estimate has the company earning 34 cents a share on revenue of $4.7 billion.
This wide range likely means that shares could move 10% or more in after-hours trading and into Thursday’s session. Whole Foods has missed estimates during the past two quarters by 5 cents and 2 cents, respectively. In the prior two quarters, the company matched and beat estimates by a penny.
There are both weekly and regular monthly options to trade on the stock, but I’m more interested in the March options, as they would give a potential trade more time to play out.
2 WFM Stock Trades
Bullish traders could target the WFM March $32 calls (WFM160318C00032000, $0.82) for a possible run to the low $30s. These options are slightly expensive, but they would double from current levels if shares trade past $33.64, technically, by mid-March. This would require roughly a 14% move in the stock from current levels.
Bearish traders could target the WFM March $26 puts (WFM160318P00026000, $0.71) for a possible drop below $25. A double would occur if shares trade below $24.58, technically, by mid-March.
Both aforementioned options purchased together would create a “strangle” option trade for a combined cost of around $1.55, based the bid/ask spread, with breakeven points at $33.55 and $24.45. A double would occur if shares trade past $35.50 or fall below $22.90. This would require shares to move more than 20% over the next five weeks to make a 100% return in the option trade.
Sentiment in the name has been very bearish lately, and one brokerage firm recently downgraded shares to “underperform” from “market perform.” At the same time, an uninspiring “upgrade” for the stock from “underperform” to “neutral” was reported last week after one brokerage firm said that same-store sales might not be as bad as some are expecting.
It was also recently reported that Goldman Sachs Group Inc (GS) holds a 6% stake in the company, so the firm will be looking for an impressive quarter.
I’m more bullish than bearish on WFM, but it is hard to argue with the chart and the lower lows the stock has been making. When I’m stuck in this type of quagmire, I usually refrain from taking a trade, so I’ll likely be sitting on the sidelines when WFM reports.
InvestorPlace advisor Rick Rouse is offering a special free report, “The 5 Golden Rules of Options Investing,” that reveals his rules for options trading success that will help you make double- and triple-digit profits in the months ahead no matter what the market has in store. Just click here to read it right now.
Whether you’re new to options or have years of experience, the trading advice Rick will share can help you lock in bigger gains, find new winning ideas, wring the risk out of your trades and become a more confident and successful options investor. Click here now to download your FREE copy of The 5 Golden Rules of Options Investing.
