Unusual Options Activity: PepsiCo (PEP)

Shares of beverage and snack company PepsiCo (PEP) have been trending steadily higher in the past year, with a nice rally following earnings earlier this month. One trader sees that uptrend continuing, and quickly.

  • Special: This Company’s Share Price has Increased 1650% Since 2016
  • That’s based on the November 5 $165 calls. Expiring in 8 days, over 22,426 contracts traded against a prior open interest of 196, for a 114-fold surge in volume. The buyer of the calls paid $0.30 to make the trade.

    With shares last going for around $161, the stock would need to rise less than 2.5 percent for the option to move in-the-money. With the stock right near an all-time high, a further move higher in shares could lead to fast profits in this option.

    Overall, the stock is up 14 percent in the past year, underperforming the S&P 500 by about 20 points. However, revenue has been up and earnings have been steady.

    Action to take: Investors could consider shares here, which are somewhat undervalued for a company with a list of strong branded products at 23 times forward earnings. With a current dividend of 2.7 percent, investors can be paid to wait for further upside in shares.

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  • Traders may like the option expiring next week for its low cost. While it could go bust and lose 100 percent of its value, it does stand a good chance at high percentage returns if shares keep trending higher. More risk-averse traders may want to look at a strike date farther out to play the current uptrend in shares.

     

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