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

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.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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