Unusual Options Activity: Keurig Dr Pepper (KDP)

Shares of beverage firm Keurig Dr Pepper (KDP) have been trading in a narrow range over the past few months. One trader sees the potential for a further move higher in shares in the coming months.

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  • That’s based on two different option trades with unusual activity. The most interesting is the October $36 calls. With about 100 days until expiration, over 10,912 contracts traded, a 70-fold jump in volume from the prior open interest of 157 contracts.

    Shares are trading for around $35, against a 52-week high of $37, so the strike price on these options are at about a halfway point. The buyer of the calls paid about $1.33 for the option.

    The beverage firm is up about 23 percent in the past year, underperforming the S&P 500 by about 15 points in the same timeframe. That’s in spite of a 109 percent increase in earnings.

    Action to take: Shares trade at 22 times forward earnings, which isn’t too pricey for a basket of brands in the beverage space. The company just upped its annual dividend from $0.60 to $0.75, creating a 2.1 percent yield for buyers today.

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  • With shares somewhat rangebound, the call options are a bit of a risk, but if shares start to resume their longer-term uptrend, the call options could provide a much bigger percentage return in the coming weeks and months until expiration.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.