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Trader aims to quadruple his money with a bullish bet on a Dow laggard

VIDEO1:3801:38
Trader bets on a Coca-Cola rally

After observing some unique trading activity on Coca-Cola in the options market and spotting some bullish signs on the chart, one trader is betting on the beverage giant heading higher.

"[The] key level where it pivoted in December was $40," Andrew Keene of AlphaShark.com said Thursday on CNBC's "Trading Nation," examining a weekly chart of the stock.

The bullish "pivot" to which Keene refers was in the first week of December, when the stock touched just above $40, then bouncing to $42 by Dec. 9.

"Now it's starting to march higher," he added, pointing to Coca-Cola (KO) moving slightly above its 50-day moving average.


Keene anticipates it rising above its 150-day moving average, at $43.27 — about 4 percent higher than the stock's levels on Thursday.

Bolstering his case, he noted that an institutional buyer entered the options market and made a bullish bet on May $43 calls, paying $1.10 per share.

"So my trade is buying the KO — otherwise known on the trading floor as 'Knockout' — May 44/45 bull call spread," Keene said.

Specifically, Keene is buying May 44-strike calls and selling May 45-strike calls for a total cost of $0.25 per share, or $25 per options spread.

For Keene to break even on this trade, Coca-Cola would have to close at or above $44.25 on May 19. If Coca-Cola closes below $44 on that date, Keene's trade would lose the $25 he spent on the options trade.

But if Coca-Cola does indeed rally and closes at or above $45, the trade would be worth $100, for a $75 profit.

"I think it's a good reward-to-risk setup using that unusual options activity, also using that reward-to-risk setup in the option market," Keene commented.

Coke, a Dow component, has been a serious underperformer of late. The Dow Jones industrial average has climbed nearly 5 percent in the past month, but shares of "Knockout" are almost perfectly flat.