PepsiCo Calls Pop After Upbeat Earnings

PEP call traders are expecting more upside

Deputy Editor
Jul 13, 2020 at 9:54 AM
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The shares of PepsiCo, Inc (NASDAQ:PEP) are up 0.6% at $135.25, after the food and beverage behemoth entered the earnings confessional this morning, reporting fiscal second-quarter earnings that beat Wall Street's estimates. Additionally, revenue came in just above forecasts, and the results can be chalked up to a 4% surge in organic sales of its snack offerings. Still, like many other companies, PepsiCo is withholding future financial guidance as COVID-19 continues to take its toll on the economy. 

PepsiCo stock has spent most of the last three months consolidating between the $127 and $138 area. That upper channel is being firmly contained by the shares' 200- and 160-day moving averages, while PEP also faces off with their year-to-date and 12-month breakeven levels. Nevertheless, the majority of analysts are treating PEP with optimism. Of the 15 in coverage, 10 sport a "buy" or better rating and zero "sells" on the books.

There's a strong preference for calls in the options pits. PEP sports a 50-day call/put volume ratio of 4.22 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the 90th percentile of its annual range, and implies a healthier-than-usual appetite for long calls of late.

Today is more of the same. In just the first hour of trading, over 11,000 calls have changed hands -- nine times the average intraday amount and five times the number of puts traded. Most popular so far is the July 140 call, but there are also new positions being opened at the 138 call from the same series. Buyers of this call are banking on an extended push higher from PEP by this Friday, when the options expire.

The good news for options traders is that PEP's Schaeffer's Volatility Index (SVI) of 25% stands higher than just 15% of all other readings from the past year. This implies that near-term option traders are pricing in relatively low volatility expectations. 


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