Monday, October 22, 2012

Betting on 2010 at Safeway

By David Russell

Safeway (SWY) shares appear to be putting in a bottom after struggling for most of 2009, and now investors are wagering on the upside.
optionMONSTER's Heat Seeker tracking program detected heavy buying of the June 20 calls and the January 2011 20 calls. The shares were purchased aggressively after the options transactions appeared, indicating hedging by the dealer who sold the calls.

SWY is up 2.2% to $21.35 in early afternoon trading. The grocery stock rallied after reaffirming its guidance on Oct. 15 but has been retreating for the last month. It gapped down earlier in December after rival Kroger (KR) cut its forecasts.

But SWY seems to have found support around the $20 level that had served as resistance in April and June. It's also consolidating above the 200-day moving average, which has started pointing higher for the first time since October 2007.

The investor paid $2.40 for 10,000 June calls and $3.20 for 5,000 January 2011 calls. Purchasing in-the-money options will let him or her benefit almost immediately from appreciation in the stock price and reduce losses to time decay if SWY remains little changed. The strategy has become increasingly common this month.

Overall options volume in the name is five times greater than average today. Calls outnumber puts by 21 to 1.

(Chart courtesy of tradeMONSTER)

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