Shares of The Coca-Cola Company (KO) are up about 6 percent in the past year, far outperforming the drop in the S&P 500. One trader sees shares continuing to rally in the coming weeks.
That’s based on the October 21 $55 calls. With 21 days until expiration, 2,804 contracts traded compared to a prior open interest of 104, for a 27-fold rise in volume on the trade. The buyer of the calls paid $2.88 to get into the trade.
Shares recently traded for just over $57, indicating that the options are already about $2 in-the-money. The strike price of the option is still well off its 52-week high of $67.20.
The company has seen earnings drop nearly 28 percent in the past year, but revenue is up 12 percent. And with a 23 percent profit margin, shares remain massively profitable, with the stock trading at 22 times earnings, historically in the low-end for the beverage giant.
Action to take: Shares are a potential long-term buy here, as the company’s products remain popular. Plus, the company has had no trouble increasing prices due to inflation and passing that along to consumers. Shares also yield 3 percent at current prices, a solid entry point for the dividend growth stock.
For traders, the calls are well-priced for already trading in-the-money. That lowers the risk of the potion being completely wiped out, but does limit the upside as well. Traders can likely make mid-double-digit gains 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.