Tyson Puts: Which Came First, the Chicken or the Corn?

Early this morning we spoke with CNBC’s “Squawk Box” on the preponderance of put trading in chicken producers Tyson (TSN) and Pilgrim’s Pride (PPC) that appeared tied to the recent moves higher in corn futures.

We questioned the circumspectness of this view, given the degree to which chicken producers have surely hedged their exposure to market prices in the soft commodities in anticipation of just this sort of inflationary environment (in fact, it has been reported, Pilgrim’s Pride just last summer hired a former commodity trader for a newly created senior executive position aimed at managing the company’s vulnerability to grain and energy prices).

We also recalled somewhat sheepishly a similar rush to buy puts in food producer ConAgra (CAG) ahead of its earnings announcement – which surprised to the upside. Bearing all that in mind, we were interested to observe this morning an increase in Tyson’s option volume of more than 10 times the normal level as shares gained 2.7% to $16.90.

It appears that some option traders have had a rethink – or at least a speculative wild hair – on the outlook for Tyson’s prices heading into its late-April earnings announcement. With the equivalent of more than a quarter of its open interest in play, four times as many calls are trading as puts, most of it tied up in heavy call buying at the 17.50 strikes in April, May and July. This is the highest level of call volume recorded for Tyson Foods since last June. Implied volatility at more than 50% shows option prices reflecting a 17% higher risk premium to Tyson shares than has been historically justified.