Guide on Securing a 2% Discount When Buying KO or Aiming for a 17% Yearly Profit
In the ever-evolving world of beverages, The Coca-Cola Company is making strides in healthier alternatives, with the introduction of Coca-Cola Energy, Coca-Cola Plus Coffee, Powerade Ultra, and Powerade Power Water. This move is part of a broader strategy to diversify its product portfolio.
Meanwhile, for investors seeking additional income, the company's stock (KO) presents an intriguing opportunity through the strategy of selling cash-secured puts. This approach, which involves writing a put option and setting aside enough cash to buy the stock, offers a consistent premium income if the stock remains above the strike price.
Currently, the implied volatility for KO stands at 16.45%, with a 12-month high of 30.61% and a low of 12.29%. The IV Percentile for KO is 32%, and the IV Rank is 22.72%.
Selling cash-secured puts is a slightly less bullish trade than outright stock ownership. Yesterday, with Coca-Cola trading at $67.89, the August put option with a strike price of $67 was trading around $0.49. If assigned, the seller may be obligated to buy 100 shares at the strike price, resulting in a net cost basis of $66.51, a 2.03% discount from the price it was trading yesterday.
The more bullish the investor, the closer they should sell the put to the current stock price. Risk-averse traders might consider buying an out-of-the-money put to protect the downside. Selling deep-out-of-the-money puts generates the smallest amount of premium and is less likely to see the put assigned.
It's essential to note that this strategy requires significant cash capital reserved to cover the potential stock purchase. For instance, if the strike price is $140, the cash collateral required would be $14,000 for 100 shares. This reduces capital flexibility and can make position sizing challenging for smaller accounts.
In comparison, long calls require less capital upfront but offer unlimited upside but can lose the entire premium paid if the stock does not rise above the strike price plus premium. Bull call spreads limit both risk and reward, while covered calls involve owning the stock and selling calls against it, generating premium income but requiring stock ownership upfront.
With 23 analysts covering KO, 20 have a Strong Buy rating, 2 have a Moderate Buy rating, and 1 has a Hold rating. The Technical Opinion rating for The Coca-Cola Company is a 24% Sell with a Strengthening short-term outlook.
The Coca-Cola Company's strong brand equity, marketing, research, and innovation help it maintain a significant market share in the non-alcoholic beverage industry. Most of its beverages are manufactured, sold, and distributed by independent bottling partners. Its portfolio includes beverage products spanning from sodas to energy drinks, and it also sells a large range of still beverages including water, enhanced water, juices, juice drinks, sports drinks, ready-to-drink teas, coffees, dairy, and energy drinks.
Investors interested in finding similar investment opportunities can utilise the Naked Put Screener. If the stock stays above $67, the return on capital for selling the put could be 17.9% annualized.
The company reports operating results under the following segments: Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Global Ventures; Bottling Investments; and Corporate.
Investors looking to explore technology-driven income streams might find interest in The Coca-Cola Company, as its stock (KO) offers an opportunity for selling cash-secured puts. This strategy, popular in finance, involves writing a put option and setting aside cash to buy the stock, generating a consistent premium income if the stock remains above the strike price.
In the context of The Coca-Cola Company's financial performance, technology could play a key role in fostering innovative solutions for its diverse product portfolio, potentially increasing shareholder value.
