The Amazon juggernaut has traders making record bets against America's largest grocer

Kroger grocery storeAP Images / LM OteroSpotted: the only person still bullish on Kroger.

Kroger, the largest traditional grocer in the US, has already seen its stock plummet 30% since Amazon first announced its acquisition of Whole Foods.

Traders are betting that the pain will continue.

Short interest on Kroger — a measure of wagers that share prices will drop — has surged to a record high, increasing 151% this year, according to data compiled by financial-analytics firm S3 Partners. It now sits at $US1.43 billion, nearly triple the next-biggest short position in the food retailing sector.

S3 figures that short sellers have reaped total profits of $US289 million over the past 8 1/2 months, an impressive 40.5% return.

And while Kroger’s drop may entice bargain hunters and value investors to buy the stock at its current depressed value, S3 warns that pressure from shorts could get even worse. Only 7.5% of Kroger’s float is being used, which gives bearish investors plenty of capacity to add to short positions. And they have been — in just the past two weeks, short interest has risen 9%.

Screen Shot 2017 09 19 at 8.25.49 AMS3 PartnersKroger is the most shorted company in the food retailing sector by a factor of roughly three.

Kroger’s short seller woes are just one example of the so-called “Amazon effect” that has retailers reeling nationwide. Jeff Bezos’ ever-expanding retail behemoth has shown the ability to erase billions of dollars of competitor market value with seemingly innocuous corporate announcements, and it’s put everyone from brick-and-mortar stores and retail bulls on notice.

The Cincinnati-based grocery chain most recently saw its stock rocked by Amazon after the company announced that it would start cutting prices at Whole Foods. While the share price destruction among grocers was widespread, no company was hit harder than Kroger, which dropped as much as 8.3%.

So when will the stock weakness subside? When will the Amazon effect finally and mercifully let up? You’ll have to ask the short sellers, who are showing no signs of slowing right now.

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