Price weakness after Coca-Cola reported earnings made for a refreshing entry point for shorting KO’s 2016 puts.
By Dr. Paul Price of Market Shadows
Originally posted on Feb. 18, 14.
You would think the last quarter was a disaster. Coca-Cola (KO) is down big today. In fact, the company hit the estimates on the head at 46 cents per share for Q4 and $2.08 for the full year 2013. And it doesn’t get much better than Coke in terms of safety and stability.
KO’s multiple, based on year-ahead projections of $2.21, is 16.9x. That’s near Coke’s lowest valuation in more than a decade. Only the post-crash 2009 – 2010 period offered a cheaper entry point. KO’s 3% yield, at today’s $37.38 quote, is higher than at any time in the past decade, except for the 2009-10 period–a great time to buy KO.
If history is a guide, Coke’s quarterly payout will be increased again before long.
Market Shadows sold two (virtual) contracts of the KO Jan. 2016 $40 puts today for $6.35 per share. We will either keep the $1,270 premium received or be forced to buy 200 shares at a net cost of $33.65 per share ($40 strike – $6.35 put premium). Either we keep the money, or we buy KO for even less than it’s trading for now.
We already are short two contracts of the KO Jan. 2015 series, $40 puts. Our new trade is in addition to the old one, not as a roll out.
Follow all Market Shadows’ previously closed-out and current options positions here.
