Call Buying in Coca-Cola: Options
By Jud Pyle, CFA, chief investment strategist for the Options News Network
NEW YORK (
) --
Coca-Cola
(KO) - Get Report
has been attracting heavy options activity Friday.
Even though the stock has underperformed the market, at least one investor sees more upside in KO and boosted both call volume and October implied volatilities Thursday. The stock has rallied 20% from its March lows.
More than 14,000 of the Oct. 52.5 calls have changed hands so far today versus open interest of 6,592 contracts. These calls have climbed 60 cents on the day. Implied volatility is up, as well. Thursday night, implied volatility of these calls was 19. The current implied volatility of these calls has climbed to 22 so far today compared to a 63-day realized volatility of 17.
KO has not confirmed when it will announce earnings, but it is likely to be around Oct. 13 before the market opens. That could be the reason that there is such interest in the October contract, as the investor wants the exposure to the earnings month.
Call buying such as this does not necessarily mean investors should run out and buy up KO shares. Keep in mind that investors do not necessarily have to hold on to these calls until October expiration to make money. If KO shares rise significantly during the next month, investors could decide to sell the calls and take profits. But for today, the presence of this buyer is probably one reason that the stock is moving to the upside.
-- Written by Judd Pyle in Chicago
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."
