$16 billion market cap packaged food company Conagra (CAG) – which reports earnings this Thursday morning – is the most boring company in the world. With brands like Marie Calendar’s and Healthy Choice and a stock that has traded in an $8 range since the beginning of last year, you can’t get much more boring than this.
In its fiscal year 2021, CAG earned $2.64/share on an adjusted basis. This fiscal year it is guiding to $2.50 – a decline of 5%. Boring. Based on Friday’s closing price of $34, that’s a 13.6x multiple on current year earnings. Boring. CAG pays a 3.67% dividend. So boring.
Why would anybody care about the most boring stock in the world?
Because there’s an options strategy known as selling a straddle in which you can profit from it. In this strategy you sell both a put and a call with a strike price equal to the current stock price. If the stock moves less than the premium you collect from selling both options, the trade will be profitable.
In CAG’s case, you would sell both the put and call with a $34 strike price and April 8 expiration. Based on Friday’s prices you would collect ~$2 in premium from these sales. As long as CAG’s stock moves less than that next week – staying between $32 and $36 – the trade will be profitable. Given that CAG’s range since the beginning of 2021 is only $30 to $38, even in the case of an extreme move you would only lose $2 per straddle – as long as the top or the bottom of the 15 month range holds.
For example, you might sell 5 contracts of each option to collect $1000. If CAG moves $1 in either direction – to $33 or $35 – one of the options will be worth $1 (the other one will be worthless). Multiplied by 5 contracts that’s $500. In other words, you will have made $500.
This strategy is a high probability base hit when it works but a huge strikeout when it fails. If CAG does have an extreme move outside of the range for some reason, one of the options could increase in value exponentially leaving you on the hook. That’s why you should only make this trade if you’re willing to bear that kind of risk – and go small even if you are.
In the case of selling a straddle, boring is beautiful.