Beverage and snack food giant PepsiCo (PEP) is slightly up over the past year, although shares have been sliding in recent sessions. One trader is betting on a continued decline in the next two months.
That’s based on the November $170 puts. With 66 days until expiration, 11,152 contracts traded compared to a prior open interest of 309, for a 36-fold rise in volume on the trade. The buyer of the puts paid $2.26 to make the bearish bet.
Shares recently traded just over $176, so the stock would need to drop $6, or about 3.5 percent, for the option to move in-the-money. It would also mean a drop to a new 52-week low below the prior low of $160.98.
Such a move is possible with Pepsi stock, especially as the company next reports earnings in mid-October.
Currently, Pepsi trades for about 22 times earnings, about in-line with the overall market. And Pepsi managed to increase revenues by 10 percent last year.
Action to take: Shares are trending lower, so interested investors should wait for a move to the low $170 range before they start to buy. Pepsi yields 2.7 percent at current prices, and the company has a history of raising its dividends over time.
For traders, the November puts are well positioned to profit from the current downtrend. They can likely see mid-double-digit returns in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.