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Shares spiked Friday in energy drink maker Monster Beverage Corp (NASDAQ:MNST - 49.83) on the news that it might be a takeover target for soft-drink giant The Coca-Cola Company (NYSE:KO - 37.67). And the MNST ticker was a huge target in the option pits as well, with overall volume 5.3 times normal, with about 19,000 calls traded (seven times normal) and more than 23,000 puts crossing the tape (about four times normal).
Besides two short-term strikes that were active ahead of Friday's expiration, the most popular option was the March 50 put, which saw 2,897 contracts change hands for a volume-weighted average price (VWAP) of $3.04. Implied volatility increased by 5.5 percentage points, and a healthy portion of these traded for the ask price -- indicating that at least some of these were purchased to open new positions. Indeed, open interest rose over the weekend at this newly front-month strike.
The negative 0.42 delta indicates there is a 42% chance the strike will be in the money by expiration. Furthermore, for the put buyers to break even by expiration, the stock needs to close at $46.96 (strike price minus VWAP), or down 8% from current levels. If the stock is still trading north of the 50 strike when the options expire at the close on March 15, all the traders can lose is the premium paid.
Investors have rarely had such a bearish attitude overall toward MNST in the last 12 months. The Schaeffer's put/call open interest ratio (SOIR) for the equity stands at 1.76, which is the highest such reading taken in the last 12 months. That means that over the last year, investors have never been so put-heavy on contracts that expire in the next three months. In addition, MNST's 50-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reads 2.26 -- meaning investors preferred calls more than 2-to-1 during the last 10 weeks. And that is higher than all but 7% of similar readings in the last 12 months.
Until Friday's news boosted MNST 7.1% during the day, the stock had been taking a bit of a breather from a surge that saw it up nearly 20% from its 12-month low of $39.99 on Nov. 8. The stock is still down more than 5% year to date, however, and is in negative territory over the last 12 months as well. And in another indication of the bearish attitude toward the stock before Friday's news, short interest had jumped 19.3% over the last two reporting periods.
As for the impact on KO, the equity jumped nearly 1.6% Friday, shaking off a losing streak brought on by a disappointing earnings report early in the week.