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Is Coke the Real Thing or Real Trouble?

Sure, Coca-Cola's stock price has put PespiCo.'s to shame in recent months. And the iconic beverage company has recently trumpeted its market share gains on its longtime soda pop rival in the carbonated beverage market, too.

Coca-Cola bottles
AP
Coca-Cola bottles

But options activity on "the real thing" is telling us that Coke's been running on a sugar high that's about to end.

At issue are input costs — corn, plastic and aluminum — which Pepsi revealed are going to rise and stay high for a long, long time. The snack and beverage company lowered its 2011 earning-per-share growth target to 7%-8% from 11%-13%.

Options traders are fearing that Pepsi's problems will be Coke's problems too.

"It's not only what goes into the product, but what the product goes in that will all be problems for Coke going forward," said Scott Nations, NationsShares Chief Investment Officer and Options Action contributor.

Coke was up over $1.50 just after Wednesday's open, and has given back most of its gains in reaction to Pepsi's lowered outlook.

The stock is still in positive territory after Pepsi's dour report, but the call-put ratio in Coke options is 1 to 2.5. That's a complete reversal of the daily average, since on a normal day, 3.5 calls trade for every put.

The biggest trades in Coke options have been in May 57.50 puts, with 6,100 options traded and Aug. 57.50 puts, which have traded 3,100 options so far, Nations said -- a bearish sign for the shares.

But can't Coke's commodity costs be hedged? "Pepsi said this would be an issue for years for them," Nations notes. "You can hedge for a year or two, but it's tough to hedge very far out in the calendar."

At any rate, Coke's options are the third-cheapest among Dow components, so it doesn't cost too much to play it safe if you're worried ahead of Coke's profit report Friday morning.


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