Stock Option Advisory

Whole Foods and Wild Oats Merger Likely To Go Through – Organic Covered Call Opportunities

In our June 6th article entitled, “What do Health Food Supermarkets and Satellite Radio Have in Common? The FTC, Mergers, and Option Investing Opportunities”, we reported on the potential deal between Whole Foods Market and Wild Oats. Now the stock of both companies has risen around 5% since then and the merger looks likely to go through. Today, we will look again to both of these companies and explore potential Covered Call trading ideas.

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On Friday a judge struck down a US Federal Trade Commission request to block the merger of Wild Oats Markets Inc. (OATS) and Whole Foods Market Inc. (WFMI). The government can appeal the ruling, but the $565 million deal looks likely to go through.

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The news sent Whole Foods, a stock that has dipped in recent weeks, up almost 9% to $44.75 in trading on Friday morning. The stock has since settled slightly. Wild Oats also jumped more than 18% to $18.01, but has since fallen back a little as well.

In a note to clients, Citigroup Analyst Gregory Badishkanian said, “We think uncertainty surrounding the Wild Oats deal has been a distraction for management. The ruling should relieve this overhang as management can now focus on what it does best – opening new stores and operations.”

The FTC made the case the two companies’ merger would limit competition in the small health food sector. Whole Foods and Wild Oats naturally argued conventional stores from Albertsons to Target were beginning to carry natural and organic foods and posed significant competition for the niche.

John Mackey, chairman and chief executive of Whole Foods was quoted in news reports as saying, “The District Court’s ruling affirms our belief that a merger between Whole Foods and Wild Oats is a winning scenario for all stakeholders. We believe the synergies gained from this combination will create long-term value for customers, vendors and shareholders as well as exciting opportunities for team members.”

U.S. District Judge Paul Friedman’s reasoning was filed in a 93-page document that was sealed because it contains corporate secrets, media reports said.

FTC Commission Competition Director Jeffrey Schmidt did not seem pleased at the outcome of the ruling and stated, “We respect the Court’s decision, which we currently are reviewing. We brought this challenge because the evidence before us showed that the merger would most likely result in higher prices and reduced choices for consumers who shop at premium natural and organic supermarkets.”

The FTC also released documents stating Whole Foods planned to close 30 stores if the Wild Oats acquisition went through.

Looking at this News from an Options Trading Perspective:
There is no guarantee the Wild Oats and Whole Foods merger will spell profits for investors. This blog entry, as with all of the blog entries here, is design to show an investor how the powerful Poweroptions search tools can be used to identify the best option trades for a given market outlook. Because option data is often cumbersome and difficult to find, an investor requires the aid of a solid tool to help them sort through the noise. With its 14-day free trial, there’s really no reason not to take PowerOptions for a test drive. We think you’ll find the interface easy to use and you’ll be finding desirable option trading ideas in no time.

PowerOptions has trading experts available to help investors more fully understand the option trading process. They can be reached, toll free, at 877-992-7971. There are additional resources on the PowerOptions website for investors to learn more about the fun and exciting world of option investing. The following links, Help with Options, How to Write Covered Calls and Investing in Options are all great resource articles to help you get the hang of options trading.

Potential Trades:

The following Wild Oats and Whole Foods option trades have 36 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.

Power Options Covered Call Search Data
Symbol Stock
Option Option
Whole Foods Market Inc. WFMI 43.37 FMQII 07 SEP 45.0 (36) 1.39 41.98 3.2 3.3 7.2
Whole Foods Market Inc. WFMI 43.37 FMQIH 07 SEP 40.0 (36) 4.25 39.12 9.8 2.2 2.2
Wild Oats Markets Inc. OATS 17.94 QOQIW 07 SEP 17.5 (36) 0.8 17.14 4.5 2.1 2.1
(For more details click the ticker symbol above)

WFMI- The Whole Foods trades involves the September $45 and $40 call options and offer 3.2 and 9.8% downside protection with 7.2 and 2.2% potential profit, respectively, if the stock is above the appropriate strike price at the end of the option period.

OATS – The Wild Oats trade involves the September $17.50 call option and offers 4.5% downside protection and 2.1% potential profit if the stock is above the $17.50 strike price at the end of the option period.

Competitors for WFMI include: Wild Oats Markets Inc. (OATS), GNC Corporation (private), and Trader Joe’s Company (private).
Competitors for OATS include: Kroger Co. (KR), Whole Foods Market Inc. (WFMI), and Trader Joe’s Company (private).
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.

PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.

[tags] Federal Trade Commission, Gregory Badishkanian, FTC, John Mackey, GNC Corporation, Trader Joe’s Company, KR, Kroger Co., OATS, Wild Oats Markets Inc., WFMI, Whole Foods Market Inc., covered call investment strategy, help with options, how to write covered calls, investing in options, investment strategy, option investing, options trading, poweroptions [/tags]

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