The shares of Dow component The Coca-Cola Co (NYSE:KO) have struggled to find their footing during the past several weeks, with KO stock bouncing between support at $40 and resistance at $45. The company has a chance to solidify a direction for KO stock next week when Coca-Cola releases its fourth-quarter earnings report ahead of the open on Tuesday.
Most analysts are expecting a solid performance out of Coca-Cola, with the consensus targeting earning of 42 cents per share. Historically, Coca-Cola has matched or bested Wall Street’s expectations in every quarter for the past three years.
From a longer-term perspective, the brokerage community remains firmly bullish on Coca-Cola’s outlook. According to data from Thomson/First Call, KO stock has attracted 13 “buy” ratings and nine “holds,” and two “sell” ratings.
That said, the stock is trading just $3.32 below the 12-month consensus price target of $45, hinting that price-target increases could be in the making if Coca-Cola can offer up a solid report.
Options data, on the other hand, isn’t looking quite as rosy. The put/call open interest ratio for the front two months of options arrives at 0.90, with puts nearly in parity with calls in the February/March series.
Narrowing our field down to just those options set to expire at the end of next week, the weekly Feb 13 series put/call open interest ratio climbs sharply to 1.57, with puts easily outnumbering calls.
Click to Enlarge Overall, weekly Feb 13 series implieds for KO stock are pricing in a potential post-earnings move of about 3.2%. This places the upper bound at $42.83 — just above KO’s major daily moving averages — while the lower bound arrives at $40.07, marking the lower end of KO’s recent trading range.
2 Trades for KO stock
Call Spread: KO’s recently poor price action is cause for some concern, but the shares are on the upswing following another test of support near $40. Those traders willing to follow the brokerage community’s lead might want to consider a March $41/$43 bull call spread.
At last check, this spread was offered at 94 cents, or $94 per pair of contracts. Breakeven lies at $41.94, while a maximum profit of $1.06, or $106 per pair of contracts, is possible if KO stock closes at or above $43 when March options expire.
Put Sell: If you are like me and not so sure about KO stock’s upside potential, you might want to consider selling a little option premium and banking on technical support. Specifically, a weekly Feb 13 series $39 put stands a good chance of finishing out of the money. At last check, the Feb $39 put was bid at 15 cents, or $15 per contract.
With this trade, you immediately pocket the premium and keep it as long as KO trades above $39 through next week’s expiration. However, if KO trades below $39 ahead of expiration, you could be assigned 100 KO shares at a cost of $39 each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.