Call Traders See Ceiling Ahead as PepsiCo Prepares for Earnings

Another positive earnings performance would be a third straight for PEP

by Josh Selway

Published on Jul 5, 2019 at 11:34 AM
Updated on Jun 24, 2020 at 10:16 AM

PepsiCo, Inc. (NASDAQ:PEP) will report earnings before the open next Tuesday, July 9, and it's worth looking at the options data around the beverage giant ahead of the event. Most notably, PEP's Schaeffer's put/call open interest ratio (SOIR) of 0.42 shows call open interest among contracts expiring within three months more than doubles put open interest, and this reading ranks in the low 3rd annual percentile, so such a call-skew is quite unusual.

This is because peak open interest is at the July 140 call, where 16,703 contracts reside. Data shows that most of these positions were actually sold to open, so these traders are expecting PEP stock to hold below $140 through the close on Friday, July 19, when the front-month contracts expire.

The stock was last seen trading 1.5% lower at $132.02. It's had a strong year, rising more than 19% in 2019, hitting an all-time high of $135.24 on June 24. It's been a steady rise for the shares, which haven't traded below the 50-day moving average since February, as their 120-day historical volatility of 12.3% ranks in just the 1st annual percentile.

pep stock chart july 5

Helping PepsiCo along the way has been a couple of positive earnings reactions, with one-day post-earnings wins of 2.9% and 3.8% in the last two quarters. Going back two years, six of the past eight post-earnings sessions have been positive. This time around, the options market is pricing in a move of 2.6% in either direction.

Should the shares surprise to the upside, there is room for bullish brokerage attention. Right now, the majority of analysts in coverage have tepid "hold" ratings in place, and the average analyst price target of $127.84 is below current levels.


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