Buy Alert: March 4, 2014

Marcus Haber | March 4, 2014

Buy Alert: March 4, 2014

Trade Details

Buy Green Mountain Coffee Roasters (GMCR) April $90 Puts for $1.15 or better

Why?

GMCR exploded higher in February on news of a partnership with Coca-Cola (KO). Not only did KO take a 10% stake in the company, but GMCR will also offer Coke products exclusively for its upcoming Keurig Cold machine.

On the surface, it seems like a good deal – popular product, exclusive deal, new machine. However, I think the buying has been overdone. First off, GMCR’s own revenue projections remain tepid despite this deal. More importantly, the new Coke “pods” are likely to be more expensive than a can of Coke. Why will consumers spend more to produce soft drinks at home when they can already buy it so cheaply?

And let’s not forget, GMCR management is taking much of the proceeds from KO’s stake at around $75 per share and using it to buy back shares… at around $110. Now how does that make sense?

We’re going to buy puts on GMCR at the $90 strike. The reason we’re going so far out of the money is because the options are on the expensive side. Also, $90 is the approximate level of the 50-day moving average.