Krispy Kreme Doughnuts, Inc. (KKD) is a confectionery retailer based in North Carolina that is most well recognized for its chain of brick and mortar donut stores. As of the writing of this article (12:30PM CST), KKD is currently trading up 0.70% on the day to 20.22. The stock is in the upper portion of its 52 week trading range of 14.82-21.30 after rallying hard since printing the annual lows in early August. KKD is scheduled to report earnings today, 12/9/2014 after market close.
Over the last eight quarters of earnings for KKD, the stock has traded relatively bearishly, moving lower on five out of eight sessions immediately following the EPS release. KKD has also been a fairly volatile mover during this time period, registering an average historical move of 12.8%, and notably moving over 20% on three occasions. The options market is currently pricing in a relatively tame earnings reaction this quarter, anticipating just a 10.25% move by the December monthly expiration on 12/20/2014. This would represent a $2.05 directional move in the underlying stock in just over eight trading days. Despite KKD’s rebound off lows that began in the summer, I am leaning bearish on the name going into earnings. From a technical standpoint the stock has stalled out and reversed clearly off 21.00 resistance on the daily chart. Additionally the stock has begun to break down through the relevant moving averages, moving lower towards the Ichimoku Cloud. Going into this afternoon’s EPS release I will be looking to position myself short KKD in anticipation of a continuation of this recent bearish trend.
Trade: Buying the KKD Dec 20-19 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot