Short Sara Lee for Sweet Returns

This is not a good time to be a food company. Rising commodity costs are squeezing margins, especially when it’s hard to pass through the costs to strapped consumers. These woes are showing up on the charts, with sagging prices being seen among such names as Kellogg Company (NYSE: K ), Tyson Foods, Inc. (NYSE: TSN ), Kraft Foods Inc. (NYSE: KFT ) and SYSCO Corporation (NYSE: SYY )‎. Next up i s Sara Lee Corp. (NYSE: SLE ), which reports Wednesday before the open. Truth be told, the stock has done pretty well after the past few reports, including last quarter when the company missed the estimate by a lot. But the performance of its peers should be a warning that this quarter could be different. SLE’s chart is also a concern. The stock has gone nowhere for the past six months, and the $15 level sitting just above the current price has been a big problem. That’s also the sight of peak call open interest in the November series, which adds to the potential resistance.   Sentiment toward SLE is mixed. Analysts are clearly the most skeptical, with just 1 of 11 rating the stock a “buy.” But the put/call ratio is trolling near an annual low and short interest is negligible. So there’s room for pessimism — and selling — to build, especially if margins show signs of tightening. Look for SLE to fall in line with its peers and sag after earnings. It may not be a sharp move, so allow plenty of time by buying the SLE Dec 15 Puts . Here’s to some sweet returns on this trade.
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