Friday, June 10, 2011

Dr Pepper Snapple (DPS) - Call Buying in One Strike Doubles OI in Entire Issue

DPS is trading $40.21, up 0.8% with IV30™ popping up 19.5%. The LIVEVOL® Pro Summary is below.


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Dr Pepper Snapple Group, Inc. (DPS) is an integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the United States, Canada and Mexico with a varied portfolio of flavored (non-cola) carbonated soft drinks (CSDs) and non-carbonated beverages (NCB), including ready-to-drink teas, juices, juice drinks and mixers.

Eddy Altamirano showed me this one. It's order flow, but there's a little more to it...

The company has traded over 8,100 contracts on total daily average option volume of just 400. Calls have traded on a 12.4:1 ratio to puts. But, there's more... The Stats Tab and Day's biggest trades snapshots are included (below).

Let's start (rather than finish) with the Charts Tab (6 months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

Check out the last two earnings cycles. We can see the stock gapped up both times. Also, we can see how vol is rising right now. So, maybe this is an earnings play?... Well, not likely. With the last earnings report on 4-27-2011, that puts the next one at the end of Jul (after Jul expiration). In fact, last year, earnings were 7-29-10. So, not earnings related... How big is this trade, anyway?...

Now we can look to the Options Tab (below). We can see that the Jul 40 calls have very low OI -- so these are opening trades. Are they big?... Check out the Stats Tab again (above). I highlighted in red the total OI in DPS over all months and all strikes -- it's just 6,521. As of this writing, the Jul 40 calls have now traded over 7,100x. In English, the trades today will more than double the entire OI in the issue on a single line in a four hours. So, yeah -- this is a lot of interest.

The Skew Tab snap (below) illustrates the vols by strike by month.

While the order flow and OI was interesting, the skew is not. There aren't a lot of OTM options that are bid, and thus we get this sort of dot chart. And that's all I have to say about that...

All in all, the call volume is huge and unless it's two sided, will more than double total OI in the issue. One for the radar, I'd say.

Possible Trades to Analyze

This is trade analysis, not a recommendation.

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  1. If these were covered call buying, how would one deduce that? Would we have seen these sell on the bid instead of buy on the ask?

  2. We would see calls sales tied to stock in the option prices, in the vol (it would be down, likely) and in the stock volume.