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Options traders are making their way to The Coca-Cola Company's (NYSE:KO) options pits, as the beverage company prepares for its turn in the earnings confessional tomorrow morning. So far, 30,000 calls and 34,000 puts have been exchanged -- more than doubling KO's average intraday options volume.
Attracting heavy attention is the January 2014 41.25-strike call, where about 9,100 contracts have crossed at a volume-weighted average price (VWAP) of $0.22. Almost all of the contracts -- including a block of 3,949 -- went off at the ask price, while implied volatility has ticked slightly higher, suggesting calls have been bought to open at this strike. Meanwhile, data from the International Securities Exchange (ISE) confirms our theory.
On the technical front, KO dropped 2.2% an hour into the session after last quarter's earnings release on July 16, and has yet to pick itself back up. Since the close on July 15, the stock has shaved off 8% to its current perch at $37.74. By purchasing these out-of-the-money options, today's call buyers anticipate KO will climb back into territory last explored in early June. Specifically, they expect the equity to ascend past the breakeven price of $41.47 (strike price plus the VWAP) by January expiration.
As of now, the option has a 1-in-7 chance of hurdling into the money during its lifetime, according to its delta of 0.14, or 14%. Despite the odds, the most today's call buyers stand to lose is the initial premium paid, should KO fail to make the expected climb north of the strike price over the next several months.
As touched upon earlier, The Coca-Cola Company (NYSE:KO) is slated to report third-quarter earnings ahead of the opening bell tomorrow, and analysts, on average, are calling for a per-share profit of 53 cents -- which represents a 2-cent increase from last year's results. Also of note, the Dow component has matched or bested bottom-line earnings estimates in all of the last eight quarters.
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