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.
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)
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