Soda pops

Just as options traders should stay on top of the price action in their underlying markets, stock traders can help themselves by keeping tabs on options activity. One market can sometimes provide information not immediately apparent in the other.

Yesterday a LiveAction scan for unusual options activity a couple of hours into the trading session showed put options volume in home carbonated-beverage-machine maker SodaStream (SODA) was running a little more than twice its daily average:

LiveAction Scan: Unusual put options volume, 8/6/18. Heavy put volume

Source: OptionsHouse

If you look at a chart of SODA (below), you might be initially confused about why traders were snapping up puts (which, all else being equal, could be a sign of bearish sentiment): The stock has jumped around 35% over the past four days—making new record highs each time—since crushing its earnings numbers on August 11 :
SodaStream (SODA), 7/26/18 – 8/6/18. SodaStream (SODA) daily price chart. Highly carbonated

Source: OptionsHouse

The chart doesn’t even show the fact that the stock had trended steadily higher since October 2016, when it was trading below $25. Before last week’s moon shot, the stock had been consolidating since pulling back from its late-April high of $98.26.

But then again, maybe the put options volume makes perfect sense. By any measure, a four-day, 35% gain is a big-time price move—one that some short-term traders (even those who aren’t hardcore contrarians, or longer-term bulls) may expect to temporarily reverse or at least stall. After all, a pullback to the April high would take the stock below $100, while a test of the top of the May-July consolidation would drop it below $95. Even a modest give-back of half the recent surge would be below $110. (Conversely, patient bulls may be eyeing such levels as possible buy points.)

Traders expecting such a downturn could either short the stock or buy put options (or sell call options). The stock’s momentum has cooled a bit over the past couple of days (although “cooled” is relative in this case), with yesterday’s high tick of $117.94 currently serving as the peak of the post-earnings move. It doesn’t have to happen, but experienced traders would be prepared for the stock to make at least one more upthrust—the kind of move that flushes out smaller short sellers and sucks in momentum buyers—before making a significant pullback. In other words, short-side traders would need to give themselves at least some cushion on the upside, just as long-side traders would on the downside.

It’s always helpful to remember the mantra: Exceptionally big moves are often—but not always—soon reversed, in whole or in part.

PepsiCo (PEP), 1/16/18 – 8/6/18. PepsiCo (PEP) daily price chart. Breakout on CEO news.

Source: OptionsHouse

And while we’re shopping in the soda aisle, it’s worth noting that PepsiCo (PEP) broke out of a three-week trading range yesterday amid news CEO Indra Nooyi would step down in October, with Pepsi vet Ramon Laguarta taking over the reins.2

After falling to a nearly two-and-a-half-year low in May, the stock has done an admirable job of rallying back to within $5 of its all-time high of $122.51 (chart, above). Traders will be watching closely to see if the move prompts some immediate upside follow-through. If it instead quickly declines to the lower part of the recent range, many of them may start thinking “bull trap.”


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1 StreetInsider. SodaStream (SODA) Earnings. 8/6/18.

2 The Wall Street Journal. PepsiCo CEO Indra Nooyi to Step Aside. 8/6/18.