Call volume surged on
) yesterday, as 14,000 contracts traded -- or roughly five times
the usual amount. By far the most active strike was the July 85
call, where nearly 10,500 contracts traded at a volume-weighted
average price (VWAP) of $0.19. Because a majority of the
transactions went off at the ask price, and open interest spiked
overnight, it's safe to assume the calls were bought to open.
In this scenario, the traders stand to profit for every step north
of $85.19 (strike price plus VWAP) PEP takes through options
expiration next Friday. Potential gains are limited only by the
price of the underlying, while the maximum potential loss is capped
at the premium paid.
What PepsiCo saw during Wednesday's session was more of the same
for the beverage maker. According to data from the International
Securities Exchange (ISE), Chicago Board Options Exchange (
), and NASDAQ OMX PHLX (PHLX), the equity boasts a 50-day call/put
volume ratio of 2.15. In other words, calls have been bought to
open over puts at a rate of more than 2-to-1 in the last 10 weeks.
The ratio places in the 85th percentile of its annual range,
confirming a higher-than-usual preference for long calls over puts.
As a result of yesterday's session, PEP's
Schaeffer's put/call open interest ratio (SOIR)
, which measures open interest on options expiring in the front
three months, dropped from 1.07 to 0.93. Stated more simply,
short-term call open interest is now higher than put open interest
-- an indication that bullish winds are blowing toward the cola
It's little surprise, either. PepsiCo has tacked on nearly 23%
year-to-date, and was already up over 1% to trade at $84.07 this
morning at 10 a.m. EDT.
This article by
was originally published on
Schaeffer's Investment Research
Below, find some more great content from Schaeffer's Investment
Daily Game Plan - Bernanke Sparks Rally
Weekly Top 5: Can the SPX Hit 2,000 This Year?
BP plc (ADR) (
) Expected to Hold Its Bearings