Look to KO for a Solid, Safe Return

This consumer staple won't drop below support

By John Jagerson and Wade Hansen, Editors, Strategic Trader

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Traders on Wall Street are getting nervous. It’s happened before, and it will happen again.

But just because they are getting nervous doesn’t mean they don’t want to make money… They just don’t want to take on as much risk to do so.

When traders get nervous, they tend to look for safer investments that can still generate a solid return. One of the stock sectors they often rely on to accomplish this goal is the Consumer Staples sector.

Investors will often use the Consumer Staples Select Sector SPDR (NYSEARCA:XLP) as a way to track this sector.

The Consumer Staples sector is made up of companies — like Coca-Cola (NYSE:KO) — that tend to perform well whether the economy is growing or slowing.

KO is an iconic beverage company — with brands like Coke, Diet Coke, Sprite, Minute Maid, Dasani, Vitaminwater and more — that seems to have no problem selling its products in any economic environment.

When times are good, people celebrate with a Coke. When times aren’t so good, people treat themselves to an inexpensive Coke instead of buying a new pair of shoes or a new shirt.

That’s why investors love the stock during uncertain times in the market and seem to be buying it hand over fist these days.

KO originally set its high for 2018 in late-January. After consolidating for most of the year, the stock finally broke higher again in late-October following a stellar earnings announcement.

This rally led to the stock breaking above its previous high of $48.62 on its way up to a high of $50.84 on Nov. 20.

Daily Chart of Coca-Cola Company (KO) — Chart Source: TradingView

The stock has since pulled back a bit, but its former resistance level is now holding as support, as you can see in the chart above.

We want to approach this trade from an income perspective. Since we don’t anticipate the stock dropping below support any time soon, we think selling puts is a great way to take a position in KO.

To find out which naked puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today. 

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.

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Article printed from InvestorPlace Media, https://investorplace.com/2018/11/look-to-ko-for-a-solid-safe-return/.

©2018 InvestorPlace Media, LLC