Pepsi Stock's Record High Drives Intense Options Trading

A bullish analyst note from Susquehanna has PepsiCo stock soaring

Apr 12, 2017 at 1:55 PM
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PepsiCo stock is breaking out to record highs on Susquehanna's upgrade to "positive" from "neutral." The brokerage firm also raised its price target to $132 from $118. At last check, PEP shares were up 1.4% at $113.35 after earlier touching an all-time peak of $113.77, bringing a raft of options traders to the table.

At last check, PEP options were trading at quadruple the expected intraday rate, with overall volume ranking in the 98th annual percentile. The top strike is the June 120 call, where it's safe to assume speculators are buying to open out-of-the-money positions. In doing so, these options traders foresee Pepsi shares toppling $120 -- and racing to even higher highs -- through June expiration.

But not everyone's as confident in Pepsi stock. In fact, twin 1,500-contract blocks were exchanged at the June 100 and 110 puts. Based on the data, the higher-strike put was bought to open while the lower was sold to open, hinting at a bear put spread -- and expectations that PEP will head back toward the $100 century mark over the next two months.

While calls nearly double puts in today's trading, the opposite has actually been true in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PEP stock has amassed a top-heavy 10-day put/call volume ratio of 2.44 -- in the bearishly skewed 81st annual percentile. That said, given the shares' long-term strength, it's possible shareholders have been buying puts to hedge against downside risk.

No matter whether options traders are targeting puts or calls, the fact is that premium on short-term PepsiCo options is relatively cheap. PEP stock's Schaeffer's Volatility Index (SVI) of 10% ranks in the low 6th percentile of its annual range, hinting at muted near-term volatility expectations.

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