Todd Gordon's Kroger Options Trade

Todd Gordon recommended on CNBC's Trading Nation a short position in Kroger Co KR. He explained that the consumer staples stocks are under a lot of pressure, because higher yields make dividend stocks less interesting for investors.

Kroger has been in a downtrend in 2016 and it has just bounced off its trend line resistance. The downtrend is well established and there is no reason to think it won't continue following earnings, believes Gordon.

The company is going to report earnings on Thursday and implied volatility is elevated ahead of the event. Gordon wants to establish a bearish position by selling expensive options. He wants to sell the December 32.50 call and buy the December 35 call for a net premium of $0.85, which is his maximal profit for the trade. Kroger has to stay below $32.50 for Gordon to collect $0.80. The trade is going to lose money if the stock jumps above $33.30 at the December expiration and he can maximally lose $1.70.