Coca-Cola (KO) is set to report earnings tomorrow morning, but that isn't expected to do too much with options pricing -- with an expected move right around $1, or 2.3%.
Check out KO's daily chart and you'll see that the stock is running right into resistance after a very sharp rise. KO also turned positive a bit before the S&P 500 did -- so you'll want to keep an eye on the stock going forward, as that hints to the S&P 500 potentially stalling:
I'm already bullish on KO, but I'll be even more bullish on the stock as a post-earnings buy. If we get a push over $42.50 a share, then I believe we'll get follow-through to $43.50. And should KO drop, I don't think we'll violate the $41-to-$40.50 area.
So, this is one stock that I want to buy on a dip, as it sets up a possible put sell or "ratio/put" spread.
For instance, buying the weekly $41 put and selling 2x of the $40.50 grabs a credit of around $0.02 (which simply offsets commissions). If the stock is put to me, I'm paying a net $40 a share.
If KO drops down into the $41s, I can probably grab a dime or so in profit. And if it moves upward, I can look to buy the stock and play the push higher. Lastly, should KO finish the week at $40.50, there would be close to 50 cents a share in profits.
This is a great play if you're willing to buy the stock lower in a specific area but not looking to put out a lot of risk in front of earnings (other than, of course, buying the stock lower).
As for KO's technicals, the Relative Strength Index (RSI) is very strong, as is the Moving Average Convergence/Divergence (MACD). Trend and momentum certainly favor the stock, but we're about to be hit with heavy fundamental news -- so the chart primarily provides us with some trading ideas once we absorb the fundamental news.
Now let's look at KO's weekly chart:
Without the upcoming earnings report, KO's weekly chart looks like it's setting up a buy this Friday if we were to close over $42.25, with a target of $43.75.
And even with the upcoming earnings release, we could still very well get that setup. Ironically, the expectations of the option move is in a price range where we've seen little trading over the last nine months.
Again, momentum and trend as shown by the RSI and MACD are bullish on the weekly chart. Volume is the weakest link of the group, albeit still bullish.
Still, I'm maintaining a focus on the daily chart and using the ratio/put spreads into earnings until something more develops with the weekly picture. I'll focus more on the weekly chart at the end of the week, as KO's closing price should be material in regard to whether the stock sees a price breakout or returns to a wide trading channel.