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Krispy Kreme Doughnuts, Inc. (Krispy Kreme) is a retailer and wholesaler of doughnuts and packaged sweets.
Last earnings cycle the stock popped from $6.40 up to $8.05 or 25.8%. The stock was in the $3 range a year ago and has climbed substantially since. Here's a news snippet from a Blooomberg article last Thursday:
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Chief Executive Officer James Morgan plans to add oatmeal, yogurt, and fruit juice to the Krispy Kreme menu. The very prospect would have been laughable in the late 1990s when the chain's "Original Glazed" doughnut became a national obsession—before falling victim to overexpansion and the carb-free Atkins diet.
The new menu is part of a revival at Krispy Kreme. Its stock has more than doubled in the past year, to $9 per share. Last month the chain posted its best quarterly profit since 2004: $9.17 million on sales of $104.6 million for the first quarter ended May 1, more than double that of the year before. To keep the momentum, Morgan says he needs to sell healthier food and specialty coffee. "We weren't getting a lot of verbal complaints," he says. "But we also were not getting the sales we thought we should."
Source: Krispy Kreme Wants to Be Good for You, written by Leslie Patton.
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Today, KKD came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.
Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1
The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.
The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.
Let's look to the Skew Tab (below).
I've only included strikes up to 25% OTM to focus the chart on the near the money options. We can see how the front month is elevated to the back, and also that the upside skew difference is greater than the downside.
Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).
I've highlighted the pop off of last earnings. HV20 is artificially elevated b/c of that move. IV30™ (63.03) is just under the HV180 (64), so vol feels sort of "fairish" at this level.
Finally, let's look to the Options Tab (below).
We can see that Aug vol is priced at ~58 and Jul is priced at ~65.
Potential Trades to Analyze
1. Two sided calendar:
The Jul/Aug 7.5/10 calendar strangle sells ~64.5 vol and purchases ~57 vol.
2. One-sided calendar:
a. The Jul/Aug 10 calendar call spread sells ~63 vol and purchases ~54 vol while benefiting from an upside move in the stock (as long as it doesn't go much higher than $10). It's an interesting way to sell elevated vol while owning some deltas for those that want to bet on a continued short-term increase in stock.
b. The Jul/Aug 7.5 calendar put spread is also on the board, but for a smaller vol scalp.
This is trade analysis, not a recommendation.
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