PepsiCo Stock Attracts Option Bears Ahead of Third-Quarter Results

PEP put options are popping today

Managing Editor
Oct 1, 2018 at 2:52 PM
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PepsiCo, Inc. (NASDAQ:PEP) stock is trading slightly lower this afternoon, last seen down 0.4% at $111.40, as traders gear up for the company's third-quarter earnings. The beverage giant's quarterly report is slated for release before the market opens tomorrow, Oct. 2. Below, we will take a look at what the options market has priced in for the stock's post-earnings move, and dive into how PEP has been faring on the charts.

Overall, the Coca-Cola rival has seen significant improvement since its May 9 bottom of $95.94. The shares have since gained over 16% and touched a multi-month peak of $118.44 in early August. Since then, PEP has consolidated atop the $110 area and its  200-day moving average.

Daily Chart of PEP with 200MA

Digging into its earnings history, PEP closed higher the day after reporting in five of the last eight quarters, including the past two in a row. Looking broader, the shares have averaged a slim 1.1% move the day after earnings over the last two years, regardless of direction. This time around, however, options traders have priced in nearly triple that, expecting a 3.4% swing for Tuesday's trading.

In the options pits, data from the (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows Pepsi stock with a 10-day put/call volume ratio of 0.79. While this ratio indicates Pepsi calls have outnumbered puts on an absolute basis in the past two weeks, it registers in the 79th percentile of its annual range, suggesting option buyers have picked up bearish bets over bullish at a faster-than-usual clip in the past two weeks.

Echoing that, PEP puts are flying off the shelves at four times the average intraday pace today. Specifically, roughly 11,000 puts have traded, with buy-to-open action detected at the weekly 10/5 111-strike put -- the most popular option so far. Buyers expect Pepsi shares to sink beneath $111 by the end of the week, when the options expire.


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