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In a speech last week, Vice President Kamala Harris proposed cracking down on price gouging (or as she called it, “price gauging”) by grocery store chains to fight food inflation.
A number of media observers suggested that Harris’s proposal was akin to price controls.
Of course, the problem with blaming supermarket chains for food price inflation is that they all operate on razor-think profit margins. The Kroger Company (NYSE:KR), for example, according to Chartmill data, which is better than 63% of its industry.
If you own shares of Kroger, you may be concerned about the prospect of a President Kamala Harris imposing price controls. The TikTok video below uses the Portfolio Armor iPhone app to find two cost effective ways of hedging KR. Since we’re concerned specifically with political risk here, both hedges extend past November’s election.
As you can see below, the optimal collar shown in that video has a negative cost.
This means that you would have collected a net credit of $420 when opening this hedge. That’s assuming, to be conservative, that you bought the puts at the ask, and sold the calls at the bid. In practice, you can often buy and sell options within the bid-ask spread, so your net credit in this case would likely have been more than $420.
We may add some directional trades related to the election on our trading Substack. You can subscribe below, if you’d like a heads up when we place them.
If you’d like to stay in touch
You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we’re using that for our occasional emails now).
Posted In: KR
