Option Bulls Rush Toward PepsiCo, Inc. (PEP) Ahead of Earnings

Bullish option betting has picked up on PepsiCo, Inc. (NYSE:PEP) ahead of the company's earnings report tomorrow morning

by Josh Selway

Published on Oct 5, 2015 at 3:43 PM
Updated on Jun 24, 2020 at 10:16 AM

PepsiCo, Inc. (NYSE:PEP) is set to unveil fiscal third-quarter earnings ahead of the open tomorrow. Leading up to the event, the options market is pricing in a 2.1% move, according to PEP's near-term at-the-money straddle. Based on today's option activity, it appears most are betting on this move to be to the upside. 

By the numbers, PEP calls are changing hands at four times the average intraday rate, with traders taking a particular interest in the weekly 10/9 series, which accounts for seven of the stock's 10 most popular strikes. In this series, there appears to be buy-to-open activity taking place at the 97.50-, 98-, and 98.50-strike calls, as traders bet on extended gains from the drink giant by week's end, when the contracts expire. 

Other call players have taken a long-term approach. During the past five days, the April 2016 100-strike call has the biggest change in open interest, with over 2,200 positions added. What's more, based on data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), it appears almost all of these positions were bought to open. For this group of call buyers to see profits, though, PEP will need to overcome the $100 area, which has acted as resistance for the past year. This is also home to the stock's all-time high of $100.76, touched in February.  

151005PEP

This bullish bias isn't shared outside the options pits. For starters, short interest on PEP increased by 42.6% during the two most recent reporting periods. Analysts, too, appear to be lowering their expectations. UBS, Jefferies, and Susquehanna have all cut their price targets on the stock since Friday's close. 

PepsiCo, Inc. (NYSE:PEP) was last seen 1.7% higher on the day at $95.73. As such, the shares are back in the black on a year-to-date basis. 

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