Options Bulls Pick PEP Stock Ahead of Holidays

Calls are running at five times the average intraday volume midday

Deputy Editor
Dec 23, 2019 at 2:30 PM
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While PepsiCo, Inc. (NASDAQ:PEP) stock is relatively unchanged at the moment, trading at $137.34, but this hasn't stopped options traders from piling on. In fact, 20,000 calls have crossed the tape so far -- five times the intraday average -- compared to just 3,006 puts.

A massive amount of activity is taking place at the June 135 call, and it looks like one traders is buying to open 7,498 of these contracts for a volume weighted average price (VWAP) of $7.52. The same trader may also be hedging these bets by selling 7,498 contracts of the 120 calls from the same series. Elsewhere, new positions are being opened at the weekly 1/10 140- and 137-strike calls. 

Calls outnumbering puts has been the norm for the soda stock, though, as evidenced by its 10-day call/put volume ratio of 1.46 on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Considering its 24.2% year-to-date gain, and recent support at the 50-day moving average, though, this tendency towards bullish bets is unsurprising. 

On the other hand, the brokerage bunch is still lukewarm on the security. The majority in coverage call PEP a "hold," plus the consensus 12-month price target of $139.67 is right in line with current levels. Should some of this positive price action continue, a round of upgrades could keep the wind at PepsiCo's back. 

That being said, for those wanting to get in on the action with options, now is the perfect time to do it. PEP's Schaeffer's Volatility Index (SVI) of 12% is higher than just 1% of all other readings from the past year. This means options players are pricing in extremely low volatility expectations right now. 

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