Shares of beverage giant Coca-Cola (KO) have handily beaten the bear market of 2022 with an 11 percent gain in the past year. One trader sees the stock giving back some of that outperformance in the months ahead.
That’s based on the December $47.50 put. With 93 days until expiration, 6,800 contracts traded compared to a prior open interest of 216, for a 31-fold rise in volume on the trade. The buyer of the puts paid $0.23 to make the bet.
The stock recently traded closer to $62.50. So shares would need to decline about 25 percent for the option to move in-the-money. While that seems unlikely, especially given the stock’s 52-week low just over $52, these options are well positioned for another short-term drop in the overall market.
The company is a slow-and-steady player, with a 12 percent increase in revenue in the past year and a sizeable 23 percent profit margin.
Action to take: Long-term investors should look to buy on any dip into the low $50 range. Shares currently yield 2.8 percent here, but would trade with yields over 3 percent on a further drop in the stock in the coming weeks.
Given that the market may have some volatility lower in the months ahead, these put options are low-priced enough to deliver high-double-digit returns. Traders should look for a quick profit here, as shares of Coca-Cola are unlikely to move in-the-money.
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.