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Options traders bet Kroger can ride the consumer to big gains out of earnings

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Options traders bet Kroger can cruise higher on earnings

Grocery chains have benefited from increased traffic from consumers as restaurants and bars remained closed throughout much of the United States amid the coronavirus pandemic, and options traders are betting that will translate to big gains when Kroger reports earnings, scheduled for before the bell Thursday.

Traders certainly haven't been bearish on Kroger through the first half of the year, either. The stock is up 12% so far, bringing its total gains over the last 12 months to nearly 35%. But some traders are betting Kroger's steady rise could turn into a big leap forward by the end of the week. 

"Right now, the options market is implying a move of more than 8.7% after they report earnings later this week. That's substantially higher than the 5.8% that they have historically averaged," Optimize Advisors CIO Michael Khouw said Tuesday on "Fast Money." 

That sentiment isn't being traded thinly, either. Kroger was at more than twice its daily options volume in Tuesday's session, and a lot of that activity was centered in contracts pointing to a sharp move higher for the stock. 

"Where we saw a lot of the opening activity was in the June 33.5-calls. The buyers of those calls were paying just under 90 cents, so they were making a bet that costs a little less than 3% of the current stock price that [Kroger] will rise at least 5.8% by the end of the week," said Khouw.

Kroger was up slightly in Wednesday's session. 

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