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Trader binges on junk food stocks

Traders are binging on junk food stocks.

Kraft, Coca-Cola and Pepsi have had a tough month, falling a respective 6.5, 5 and 7 percent. But according to one trader, a confluence of unusual options activity and bullish technical indicators is signaling that these stocks are ripe to buy.

"These three charts look very similar seeing selling pressure over the last 10 to 12 days. But I think there could be a short-term bottom here," said Andrew Keene of Keene on the Market on Wednesday's "Trading Nation."

Keene noted that each name has seen a flurry of large "institutional size" call buying. The nature of that activity, according to Keene, suggests that traders see those names rallying as much as 10 percent in the coming months.

For example, in Pepsi, there were buyers of the April 105-strike calls for 34 cents. That trade makes money if the company's shares are above $105.34 by April expiration, or roughly 14 percent higher by next month. In Kraft, one trader wagered $700,000 that its shares will rally 13 percent by June. Coke saw similar flow.

For his part, Keene senses opportunity, and is looking to add to his biggest existing long, Coke.

The technical-minded trader also noted that Coke's chart, much like the those of Kraft and Pepsi, recently formed a "double bottom," which to him, signals a bullish buying sign.

"I think we've seen a short-term bottom," said Keene.

Disclosure: Keene is long the Coca-Cola August 44 calls, the April 105 calls in Pepsi and the Kraft June 67.50 calls.

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