52-Week High Alert: Trading today’s movement in PEPSICO
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PEP was recently trading at $140.40 and has an implied volatility of 12.28% for this period. Based on an analysis of the options available for PEP expiring on 7-Feb-2020, there is a 34.14% likelihood that the underlying will close within the analyzed range of $140.54-$144.51 at expiration. In this scenario, the average linear return for the trade would be 52.43%.
52 week high: PEPSICO recently reached a new 52-week high at $140.71. PEP had traded in the range $107.70-$140.45 over the past year.
Trade approach: Reaching a new 52-week high is a bullish indicator, so this trade is designed to be profitable if PEP maintains its current direction and does not revert back to pricing on the bearish side of $140.40 on 7-Feb-2020. If possible, the trade has been padded such that slight movement against the trade would still return a profit.
Upside potential: Using this bullish strategy, the trade would be profitable if PEPSICO closes at or above $140.29 on 7-Feb-2020. Based on our risk-neutral analysis, there is a 52.53% likelihood of this return.
Downside risk: As with any options trade, there is a substantial downside risk where you may lose most or all of your investment.
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