Whole Foods Market Inc. shareholders should buy call options to double returns because the largest U.S. natural-goods grocer will probably extend gains, according to UBS AG.
Equity derivatives strategist Mitchell Revsine recommended buying a November $37 call while selling two November $40 calls. The strategy, known as a ratio call spread, cuts the trade’s cost while capping potential profit and returns the most if the stock is at the upper strike price when the options expire. The grocer fell 2.1 percent to $35.63 at 10:28 a.m. New York time. It climbed 33 percent this year through yesterday.
Revsine cited UBS stock analyst Neil Currie, who upgraded the stock to “buy” from “neutral” yesterday, citing improved growth prospects on reduced costs, smaller store openings, lower prices and increasing store productivity. Currie maintained his $45 share-price forecast.
“We like the fundamental story and its growth potential,” Revsine wrote in a report yesterday. “But with no obvious near- term catalyst, we can employ an options strategy to potentially improve returns, assuming an upward climb of the stock.”
Revsine said shareholders who want to make a longer-term wager on the Austin, Texas-based company should buy a January $37 call while selling two January $41 calls.