Beverage and snack company PepsiCo (PEP) are one of the few companies to be trading near 52-week highs in today’s market. One trader sees the stock declining in the weeks ahead.
That’s based on the October $120 put. With 56 days until expiration, 10,953 contracts traded compared to a prior open interest of 157, for a 70-fold rise in volume on the trade. The buyer of the puts paid $0.13 to bet on a move lower.
Share recently traded for about $180, so they would need to fall by $60, or one third, for the option to move in-the-money. The stock would also need to drop under its 52-week low of about $150 per share.
The beverage giant is up about 15 percent in the past year, even as earnings have slid by 40 percent. That’s pushed shares to 27 times earnings, about the mid-range it’s traded at over the past two years.
Action to take: The company has a number of leading brands in the beverage and snack space, and would be worth buying on a pullback. Investors should look to buy shares in the $150 range.
For traders, the put options are an inexpensive way to bet on a market decline in the coming weeks. The option is cheap, and could lead to high-double-digit returns. Traders may want to get into the trade, and use a major down day for stocks in the next few days as a signal to take a profit.
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.