IB Options Brief: PepsiCo, Inc. (PEP) & Marathon Petroleum Corp. (MPC)

Posted November 16th, 2011 by Caitlin Duffy in Unusual Activity

Bulls bubbly on PepsiCo, Marathon Petroleum bears bank profits

PEP ñ PepsiCo, Inc.
The global food and beverage company saw heavy call action on Wednesday after the New York Post reported that the companyís board is divided on the subject of possibly splitting up the company, and that PepsiCo CEO, Indra Nooyi, may be close to making two large international acquisitions. PEP shares are up 2.0% at $65.79 as of 12:05 PM ET. Notable bullish interest is building in the Dec. $67.5 strike call, where is appears a number of strategists are positioning for shares in Pepsi to continue to climb. Investors exchanged more than 11,600 calls at the Dec. $67.5 strike against open interest of 4,317 contracts. Traders appear to have purchased the majority of the calls for an average premium of $0.51 apiece. Call buyers stand prepared to profit should shares in PepsiCo rally another 3.4% to surpass the average breakeven point on the upside at $68.01 by expiration day next month. Shares in PEP last traded above $68.01 back on July 20.

MPC ñ Marathon Petroleum Corp.
Shares in the largest Midwest oil refiner dropped like rock Wednesday morning, but it looks like the sharp decline today comes as no surprise to some options strategists who appear to have snapped up puts on Marathon Petroleum Corp. earlier this week. Refinersí shares retreated as the spread between WTI and Brent oil narrowed, a sign that profit margins at these companies may decline. Marathonís shares are off their lows of the session but remain deeply in the red, down 6.7% at $34.52 as of 11:30 AM in New York. Investors prepared to profit from Marathon Petroleumís pain purchased put options on Monday and Tuesday for a fraction of their cost today. It looks like traders picked up roughly 3,500 puts at the Nov. $37.5 strike for an average premium of $1.60 this week, as well as purchased more than 3,000 puts at the lower Nov. $35 strike at an average premium of $0.67 a-pop. Today, premium required to buy downside protection is substantially higher. The Nov. $37.5 strike puts currently cost $3.70 per contract, while the Nov. $35 strike puts cost $1.05 each. Put selling initiated at both of these strikes in the first hour of the trading session this morning suggests traders may be taking quick profits off the table.

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