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Option Brief: Keurig Green Mountain Inc (NASDAQ:GMCR) is leading the charge higher today, up 9.5% at $121.15 after The Coca-Cola Company (NYSE:KO) upped its stake in the java giant. Against this backdrop, GMCR calls are flying off the shelves at 11 times the average intraday rate, with roughly 23,000 contracts exchanged in the first hour of trading. For comparison, fewer than 12,000 puts have changed hands.
Speculators are showing an affinity for short-term contracts, as the security's 30-day at-the-money (ATM) implied volatility (IV) has jumped 20.3% to 41%. Most popular are the May 120 and 125 calls, where IV has shot 10.4 percentage points and 1.6 percentage points higher, respectively. Plus, a healthy portion of the calls traded on the ask side, and volume has surpassed open interest at both strikes, hinting at newly bought bullish bets.
The volume-weighted average price (VWAP) of the 120-strike calls is $1.82, meaning the buyers will profit if GMCR is sitting north of $121.82 (strike plus VWAP) at Friday's close, when the options expire. The stock has already surpassed this breakeven mark in early trading, peaking at $122. Delta for the call has skyrocketed to 0.59 from 0.026 at yesterday's close, implying a roughly 59% chance of expiring in the money.
Meanwhile, the VWAP of the 125-strike calls is $0.75, making breakeven at expiration $125.75 -- in record-high territory for the shares. Delta for the call has jumped to 0.29 from 0.012 at Monday's close, suggesting the options have a less than 1-in-3 shot of finishing Friday in the money. Should GMCR remain south of the strike through the end of the week, the most the buyers are risking is the initial premium paid for the calls.
While the security's short-term options are in demand today -- as evidenced by the aforementioned 30-day ATM IV spike -- now is still a relatively opportune time to roll the dice on Keurig Green Mountain Inc (NASDAQ:GMCR). The stock's Schaeffer's Volatility Index (SVI) plunged in the wake of last week's earnings report, and now sits at an annual nadir of 34%. In other words, GMCR's short-term options are cheap right now, from a historical standpoint.