Sip a Coke Call to Prep for Earnings

Good news may send stock through stubborn 68 level

With earnings season in full tilt, options trading investors may want to look at one of the market’s icons and one of the mainstays of the Dow — Coca-Cola (NYSE: KO). The company reports earnings before the open on Tuesday, April 26, with analysts expecting a modest 9% increase in per-share profit from a year ago. That’s the lowest increase since February 2010, so expectations aren’t exactly overwhelming.

What’s more, KO hasn’t missed an estimate in at least six years. With continuous expansion in developing countries (where it derives most of its sales), don’t look for the string to be broken next week.

After rallying about 10% late last month, the stock has spent most of April between the 67 and 68 levels. With the 20-day moving average now coming into play as support and the stock having performed well after recent reports, earnings could provide the boost the shares need to bust through the stubborn 68 level.

Coca-Cola (NYSE: KO)

Though KO has outperformed the broader market for the past couple of months, the stock still lags going back to the March 2009 low. And the shares are more than 20% below their all-time high. So we’re not buying into the talk of KO being overheated and ripe for a pullback. In fact, we like to hear such talk, as it just adds to the “wall of worry” that rallying stocks need to keep the momentum intact.

Don’t look for KO to make a major move after earnings. Volatility isn’t the stock’s strong suit. But that’s OK, because it keeps KO options attractively priced. We recommend buying a little more time by going with a June option. Let earnings help the stock overcome resistance. Then let the resumed uptrend take your position to a healthy profit. Go with the KO June 67.50 Call for around $1.75.