Unusual Options Activity: The Coca-Cola Company (KO)

Beverage giant The Coca-Cola Company (KO) is now flat over the past year, following a steep drop in shares in the past few trading days. One trader sees a small rebound for shares in the days ahead.

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  • That’s based on the October 20 $54 calls. With 11 days left until expiration, 6,269 contracts traded compared to a prior open interest of 245, for a 26-fold rise in volume on the trade. The buyer of the calls paid $0.42.

    Shares recently traded for just under $52.50, so they’d need to rise about $1.50, or about 3 percent, for the option to move in-the-money.

    Such a move is possible, given that shares sank a full 6 percent in the past week on market fears alone. If the market is about done selling off and ready to turn higher, the options could deliver big gains.

    Operationally, Coca-Cola has been doing fine. Revenues are up 6 percent over the last year, and earnings are up nearly 34 percent.

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  • Action to take: Many brand leaders sold off last week amid the rise in interest rates that made bonds look more attractive. Over time, dividend growth stocks tend to perform better. That may make the present time reasonable for buying or adding to a position in Coke.

    Plus, at current prices, shares yield about 3.4 percent.

    For traders, the October calls are aggressive, but are inexpensive enough to deliver mid-to-high double-digit returns on any big rally day for 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.

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