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We have been managing a position in the Coca-Cola Company (NYSE:KO) since late-November. We sold puts against KO, and we still feel bullish about the stock, especially with the market starting to rally off its lows.
All of the same reasons that inspired us to sell a put-write against KO in late November still apply today. Sure, the market has experienced a significant pullback and a tremendous amount of volatility during the past month, but many of the underlying fundamentals that have been driving investor behavior are still the same.
A Defensive Sector
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.
Like we said in November: 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 luxury item.
Traders typically love this stock during times of uncertainty in the market. They are still nervous about the future and are likely going to continue to look toward safer investments in defensive sectors, like the Consumer Staples sector.
We expect they will continue to do so in January.
Climbing Toward $48.50
KO dropped just below $46 as the S&P 500 was officially entering bearish territory on Christmas Eve, but it has since rallied back above the down-trending level that served as resistance for the stock from late July through late October.
The stock is now sitting just below the down-trending level that served as support while the stock consolidated in November and early December. We wouldn’t be surprised to see the stock pause at this level for a moment but expect KO to continue climbing up toward resistance at $48.50.
Daily Chart of Coca-Cola Company (KO) — Chart Source: TradingView
We took possession of the stock when our naked puts expired in-the-money, and we will be selling covered calls against KO to generate income while we wait for the market to settle.
To find out which calls 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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