Dr Pepper Snapple Group has been grinding sideways for 10
months, but one investor thinks it's ready to rally once again.
optionMONSTER's Heat Seeker tracking system detected the purchase
of more than 7,500 February 40 calls, first for $0.08. The premiums
then climbed, and most of the contracts priced for $0.15. Volume
was more than twice open interest in the strike.
DPS rose 0.46 percent to $35.18 on Friday. The soft drink maker
tripled between March 2009 and March 2010, but has been
consolidating its gains since.
During that time, it has been making successively higher lows. More
recently it's been making lower highs as well, resulting in a
"wedge" chart pattern. Some traders may expect DPS to make a sharp
movement if it breaks free of the wedge.
Judging by Friday's call action, they expect a the longer-term
uptrend to continue and for the stock to rally. It needs to climb
at least 14 percent by expiration for their position to turn a
profit, though the contracts will appreciate if the shares make a
quick move in the next one or two weeks. (See our Education
The timing of the trade is interesting because the options will
probably expire before the company issues fourth-quarter earnings.
The company hasn't announced the date of the report, but last year
it came out on Feb. 25. If they follow a similar schedule this
year, it would fall one week after expiration.
DPS's last earnings report on Oct. 27 was better than expected, but
management lowered its sales-growth forecast. The company's brands
include A&W root beer, Mott's apple juice, Yoo-hoo chocolate
drink, and Nantucket Nectar juices.
Overall option volume in the name was 33 times greater than average
on Friday, with calls outnumbering puts by 177 to 1.
(Chart courtesy of tradeMONSTER)