Pepsi Traders Brace for Dollar Impact on Overseas Sales: Options
By Michelle Davis
(Bloomberg) — Traders are betting PepsiCo Inc. will be the next American company to get stung by the strongest dollar in more than 10 years.
Demand for options that protect against losses in shares of the world?s second-largest beverage maker rose to the highest level in almost two years relative to bullish ones, data compiled by Bloomberg show. The number of PepsiCo shares sold short has climbed to the most in more than four months.
The dollar?s surge is making American goods and services more expensive overseas, eroding sales for the largest companies from Procter & Gamble Co. to Pfizer Inc. Investors are anticipating weaker demand for carbonated beverages and the impact from foreign currency conversions cut PepsiCo?s net income 7 percent in the fourth quarter from 2013. Coca-Cola Co. rallied 3.8 percent Tuesday as cost-cutting efforts helped its latest results.
?The market?s expecting this to be a more volatile event than we?re used to as far as Pepsi earnings go,? Max Breier, a senior equity-derivatives trader at BMO Capital Markets Corp. in New York, said by telephone Feb. 6. ?There has been a decent up-tick in the short-term volatility going into this earnings event.?
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, has risen 3.4 percent this year, closing on Jan. 30 at the highest since the index started in 2004.
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