Options traders betting on Safeway Inc. are growing more convinced the cheapest grocery-store chain in America will be acquired, threatening short sellers that have pushed bearish wagers to an all-time high.
Calls priced 10 percent above Safeway’s stock rose to the highest on record this month versus puts on three-month contracts, according to data compiled by Bloomberg, as traders anticipate a possible takeover, said JonesTrading Institutional Services LLC. Safeway shares climbed 12 percent in the last six days, the most since 2009, after the company spurred deal speculation by adjusting executive pay rules in the event of an acquisition and promoting its chief financial officer.
While short sellers are more bearish on Safeway shares than 99 percent of stocks in the Standard & Poor’s 500 Index, Safeway is also the least expensive relative to earnings among U.S. food retailers greater than $1 billion, the data show. The $5.9 billion company’s valuation and higher-quality stores than some of its competitors may lure potential buyers, said Highmark Capital Management Inc. Kroger Co. (KR) could pay $30 a share, about a 37 percent premium, to merge with Pleasanton, California-based Safeway and still boost both stocks, BMO Capital Markets said.
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