Coca Cola Comeback
New Trade Alert for (KO)
Buy Coca Cola June 2020 $40.00 Call @$7.25 or less
Risk Rating: 2 (1 = lowest 5 = highest)
Above Break Even Probability: 59%
Max Loss Probability: 15%
DOW stocks have rebounded nearly 20% from the December lows. A “V” recovery as seen every time in market history targets 32,000 in the Blue Chip Index.
Coca Cola has corrected, dropping 10% since the February $50 top. KO is down 3% in 2019 versus the DOW plus 10% in that same period.
The last month of technical price action have KO mostly sideways from $44 and $47.
A modest price target is the old top at $51.
Another drink in KO…Two Coca Cola trades in a row have been 50% winners here at Bulls Eye Option
The Options Way: Unlimited Upside Potential with Limited Risk.
A KO long call option can provide the staying power for a market upturn. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months and strikes. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70% plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security.
It is important to buy options that payoff from only a modest price move. There is no need to ONLY make money on the all but infrequent large price explosion.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability.
That Delta also approximates the odds that the option will be In The Money at expiration.
Rule Two: Buy more time than you need.
Buying better options is more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With KO trading at $46.00, for example, an In The Money $40.00 strike option currently has $6.00 in real or intrinsic value. The remainder of any premium is the time value of the option.
Trade Setup: I recommend the KO June 2020 $40 Call at $7.25 or less.
This option strike gives you the right to buy the shares at $40.00 per share with absolutely limited risk. That $40 level was last seen in 2015.
The June 2020 option has ONE YEAR AND THREE MONTHS for BULLISH development. A 80 Delta on this strike means the option will behave much like the stock.
The maximum loss is limited to the $725 or less paid per option contract. A stop loss at half of premium paid could reduce the dollar exposure. The upside is unlimited.
The KO option trade break-even is $47.25 at expiration ($40.00 strike plus $7.25 or less option premium). That is about $1 above the current price.
A push to $51 again would put option investment gain 50% to $11.00.