Lovers of meat and milk may recoil, but plant-based foods are becoming a permanent part of the mainstream global diet. Plants may ultimately even provide us with much of our sustenance without our palates ever knowing the difference.
(ticker: BYND) introduced Wall Street to a new kind of meat, and
(OTLY) has popularized a plant-based dairy product.
Many investors are familiar with Beyond Meat. The company sold shares in May 2019, and the stock surged some 163% on the first day of trading, essentially creating the plant-based food investment theme.
In 2020, retail sales of plant-based foods increased by 27%, almost twice as fast as the total retail food market, according to the Plant Based Foods Association and the Good Food Institute, which pegged the plant-based market at $7 billion in 2020.
The largest plant-based sector remains milk, which grew twice as fast as cow’s milk sales in 2020, Almond milk is the category leader, but oat milk is the second-leading segment, ahead of soy milk—and demand is strong. The trade groups report that 39% of U.S. households buy plant-based milks.
Oatly has expanded the theme. Aside from milk, the company, which is based in Sweden, makes yogurt, lattes, and spreadable cheeses, all by turning oats into vegan food and drinks. Its products are sold in 50,000 locations in 20 countries, putting it in the vanguard of plant-based foods. Early investors included Oprah Winfrey, Jay-Z, and other celebrities.
Oatly had its initial public offering on May 20. The company offered 84.4 million American depositary receipts in a deal led by
The IPO price range was $15 to $17. The stock gained almost 19% on its first day of trading.
Investors are still trying to figure out what to make of Oatly, but plant-based foods are a compelling theme that likely has staying power.
Investors who are intrigued could use options to try to monetize some of the current uncertainty around Oatly’s stock. Michael Schwartz, Oppenheimer’s chief options strategist, has advised clients to buy the stock outright and use options to generate added yield and flexibility.
With the stock at $27.49, investors could follow Schwartz’s lead and sell the December $25 put option and the December $35 call option to generate a credit of $8.60. This “short strangle”—that is, selling a put and a call with different strike prices but the same expiration—creates a trading range around the stock.
If the stock price is at or below the put strike price at expiration, investors would buy more shares on a decline. Should that happen, investors would own the stock at an average price of $22.65, which represents the cost of the initial stock purchase less the money received for selling the options. If the stock rallies and is sold at the call strike price, the effective sale price would be $43.60.
If Oatly’s stock stays between the put and call strike prices, investors can keep the options premium, which represents about 40% of the current stock price. Oatly stock has ranged from $19.99 to $29.
The short-strangle strategy works best when the associated stock meanders between the put and call strike prices. Should the stock price race past the strike prices, investors will be forced to adjust the puts and calls to regain mastery of the stock.
Still, investors with conviction—and sufficient capital—may find that options offer a potentially effective way to manage thematic investments.
Steven M. Sears is the president and chief operating officer of Options Solutions, a specialized asset-management firm. Neither he nor the firm has a position in the options or underlying securities mentioned in this column.
Email: [email protected]