Call Options Or Put Options On Green Mountain Coffee Roasters (GMCR)?

| February 28, 2014 | 0 Comments

coffeeGreen Mountain Coffee Roasters (GMCR) is having a huge year after announcing a partnership with Coca-Cola (KO).  The shares are up 50% already year-to-date.

Currently, GMCR shares are sitting at $112.89.  The stock’s up 150% from the 52-week low of $45.18 and is just 9% below the 52-week high of $124.42. 

Is this an opportunity to buy call options on GMCR because of the huge growth potential from its deal with Coca-Cola?  Or should you buy put options on GMCR because investors’ growth expectations are unreasonable?

The bulls make a convincing argument…

GMCR has grabbed a lot of attention from its deal with KO.  The stock has soared with the upcoming introduction of the Keurig Cold system, which will be able to dispense cold drinks, including soft drinks such as Coke.

The expansion into a new, massive product category could do wonders for GMCR’s revenue growth.  And, the partnership with KO means no other competitors will be able to sell similar Coke products.

Moreover, KO took a 10% stake in GMCR for $1.25 billion.  Those proceeds will in part be used to market the new product.  Plus, it gives GMCR a powerful, stable backer.

But the bears have a compelling case as well… 

While the deal with KO sounds exciting, the growth prospects may not be as lucrative as investors seem to think.

There’s no guarantee people will snap up Keurig Cold just to make Coke at home.  It’s not like buying a case of Coke is really that expensive.   What makes using a Keurig to make a Coke that much more appealing?

Furthermore, GMCR is using much of the proceeds from KO’s 10% stake to buy back shares.  So they sold shares to KO at roughly $75 a share and they’re going to use the proceeds to repurchase shares at $112?  Where’s the logic in that? 

So is GMCR’s deal with KO a reason to go bullish on the stock, or are unrealistic expectations of growth a reason to be bearish?

If you think the bulls are right, take a look at buying the GMCR April $125 calls for around $2.50.

If you think the bears are right, take a look at buying the GMCR April $100 puts for around $2.25.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.