Dr Pepper attracts range-bound trade

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Dr Pepper Snapple Group is trading near an all-time high and will report earnings next week, but one trader apparently thinks it will be a non-event.

DPS Chart optionMONSTER's tracking systems detected the sale of about 3,100 August 40 puts for about $1.75 and a matching number of August 40 calls for about $1.25 yesterday, resulting in a credit of $3. The transaction pushed total option volume in the soft-drink stock to 14 times greater than average.

DPS fell 1.82 percent to $38.88 yesterday after touching a new all-time high of $39.89. The stock has rallied 37 percent this year and has been moving virtually straight up since Feb. 25, when it gapped higher on a strong earnings report. Its subsequent release on May 6 was also bullish.

The company, whose brands include Crush, Yoo-Hoo, and Mott's, is scheduled to issue its next earnings release before the bell on July 29. Implied volatility often declines after companies publish results, depressing the price of options.

Such an event would favor yesterday's option strategy, known as a short straddle. It's designed to earn income now in return for betting the stock will remain trapped in a range--in this case, between $37 and $43. (See our Education section)

The stock's implied volatility is about 30 percent, significantly higher than the realized volatility over the last 10 to 50 days.

(Chart courtesy of tradeMONSTER)




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: DPS

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