Event: PEP reports its Q3 earnings tomorrow morning before the open. The options market is implying about a 2% one day move, which is slightly above both the 4 qtr avg of about 1.75%, and the 8 qtr avg of about 1.5%.
Sentiment: Wall Street analysts are neutral on the stock, with 19 buys, 11 holds, and 1 sell, and an average 12 month price target of around $98. PEP is up 12% year-to-date, outperforming the S&P 500 index, an impressive performance for a normally low beta stock. Short interest is negligible at 0.6% of the float.
Options Open Interest: Total open interest is slightly skewed towards calls over puts by a ratio of 1.1 to 1. Recent 1 month volumes have favored calls as well, by a ratio of 1.7 to 1. However, for a $140 billion market cap company, Pepsi has much lower options open interest than its mega cap peers.
There are only a few lines that have over 10k of open interest. The Oct18th 95 calls, the Jan15 95 calls, the Jan15 105 calls, and the Jan15 115 calls all have over 10k of open interest.
Price Action / Technicals: PEP rallied to a new all-time high in September, and has held up much better than the broader market in the past month:
The stock has generally remained above its 50 day moving average for the past 6 months, with one brief test in early August when the stock touched a low of $87.46. $90 is first support, with $87.50 more important support. The stock’s high from September is $94.21, with no resistance above there.
Volatility: Since PEP does not average greater than 2% moves on earnings, implied volatility does not rise much into the event. This time around, 30 day implied vol is near a 6 month high, but in the middle of the 2 year range:
PEP implied volatility is more likely to move with the broader market volatility, which is why its 2 year high was reached in early February.
Our View: Dan put on a new trade in PEP at the start of last week, with a time horizon longer than usual. He discussed the fundamental and technical situation that has supported the stock over the past year. For full details of our view, you can read the post here.