Options Corner: Why Kraft Heinz Could Flip The Script On The Bears

Despite a better-than-expected jobs report sending the major indices higher, multinational food company Kraft Heinz Co KHC conspicuously lost a relatively sizable portion of its market value during Thursday afternoon trading. While nonfarm payrolls increasing by 147,000 in June represented the strongest reading so far in 2025, it wasn't enough to convince investors to buy KHC stock. Still, that just might change for the better.

Undoubtedly, the Trump administration has sparked massive changes across the board. However, the food industry in particular has been under the spotlight thanks to Health and Human Services Secretary Robert F. Kennedy Jr. With his "Make America Healthy Again" initiative, Kennedy aimed the spotlight on processed food concerns.

To be sure, Kraft Heinz faces other challenges besides the political headwind. Nevertheless, the impact to KHC stock cannot be ignored. Since the 2024 presidential election, KHC has dropped around 20%, reflecting investor concerns about how the underlying company can adapt to the new public health framework.

Investors will receive greater clarity on July 30, when the food producer is scheduled to release its earnings results for the second quarter. In the meantime, there's reason for optimism despite the ugly erosion of KHC stock.

Last month, Kraft Heinz announced that it would not launch any new products in the U.S. that incorporate chemical dyes listed under the Food, Drug, and Cosmetic (FD&C) Act. The company will also remove remaining FD&C colors from its U.S. product portfolio before the end of 2027. Per The New York Times, the move came two months after Kennedy moved to ban artificial food dyes.

However, nearly 90% of Kraft Heinz's U.S. product lineup was already free of FD&C colors. Not only that, the company has been making efforts to remove artificial colors since 2016, in response to shifting consumer preferences.

It's possible, then, that the market has been overreacting to some of the pessimistic press that the food industry has been receiving.

Playing The Numbers Game With KHC Stock

As intriguing as a fundamental narrative may be, the approach lacks specificity — the very quality that options traders need. When it comes to trading in the derivatives market, a thesis can't just be accurate regarding the magnitude component (y-axis); it must also meet the profitability threshold within the given time period (x-axis).

To better guide the decision-making process, traders need to apply statistical analysis. Here, the temptation is to merely take the frequency of the desired outcome divided by the total number of events in the dataset. But this approach only calculates the derivative probability or outcome odds across the dataset's entire distribution. What traders really need is the conditional probability — outcome odds across a specific subset of the data.

To use a baseball analogy, derivative probabilities are akin to a player's career batting average. They provide a baseline expectation. Conditional probabilities represent situational batting averages, such as how a player stacks up against specific pitchers. It's entirely possible that an otherwise mediocre player just has an ability to wreak havoc on certain opponents.

Still, to quantify whether an advantage exists for a particular situation, the underlying metric must be the same. For example, one can't compare baseball stats with those of cricket. To that end, the conversion of price action into market breadth — or sequences of accumulative and distributive sessions — pancakes continuous scalar signals into distinct, discrete events.

Using this framework, the price action of KHC stock in the trailing two months can be denoted as a "3-7-D" sequence: three up weeks, seven down weeks, with a negative trajectory across the 10-week period. Admittedly, this conversion process compresses KHC's magnitude dynamism into a simple binary code. But the benefit is that market behaviors can be segregated into distinct demand profiles. Further, these profiles can be studied for their transitional likelihood, opening the door to conditional probabilistic analysis.

Since January 2019, the 3-7-D sequence has flashed 35 times. In 62.86% of cases, the price action for the following week (which corresponds with the business week beginning July 7) results in upside, with a median return of 1.84%.

Assuming that KHC stock ends this holiday-shortened week around $26.70, the security should be able to pop its head above the $27 level relatively quickly. If the bulls maintain control of the market for two weeks, past analogs imply a push toward $27.50.

Taking A Swing At Kraft Heinz Options

For those seeking a quick hit, the 26.50/27.50 bull call spread expiring July 18 presents a risky but enticing idea. This transaction involves buying the $26.50 call and simultaneously selling the $27.50 call, for a net debit paid of $45, the most that can be lost in this trade. Should KHC stock rise through the short strike price ($27.50) at expiration, the maximum reward is $55, a payout of over 122%.

Another approach is to consider the 27/28 bull spread expiring Aug. 1. This trade requires a net debit of $46 with a maximum reward of $54, a payout of over 117%. While there's greater time for this bullish thesis to pan out, the spread is highly dependent on the second-quarter earnings results (assuming a hold to expiration).

Either way, the bullish strategy is compelling because of the implied shift in sentiment regime of the 3-7-D sequence. As a baseline, the chance that KHC stock will rise on any given week is only 49.71%. In recent years, KHC hasn't been a great trade for the bulls. However, circumstances appear to be statistically different at this moment, thus incentivizing a speculative posture.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

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