Investing with Options - PepsiCo Covered Call Investing with Options - PepsiCo Covered Call Investing with Options - PepsiCo Covered Call

Investing with Options - PepsiCo Covered Call

Koen Hoorelbeke

Options Strategist

Summary:  This article presents a detailed analysis of implementing a covered call strategy with PepsiCo, a consistent performer in the consumer staples sector. This piece provides a comprehensive understanding of how options can be utilized to potentially enhance investment returns, even in a stagnant market. The article is designed to cater to both experienced investors and those new to options trading.

In the wake of PepsiCo, Inc.'s recent quarterly earnings release, there's a lot to be optimistic about. The company reported earnings per share (EPS) of $2.09, comfortably surpassing the forecast of $1.96. Additionally, PepsiCo's revenue for the quarter ending in June 2023 came in at $22.32 billion, exceeding the forecast of $21.72 billion. These robust figures underscore the company's strong performance and potential for growth.

As investors, we continually seek strategies to capitalize on such positive developments while also hedging against potential market downturns. One such strategy is the Covered Call option, which allows us to generate income from option premiums while potentially benefiting from a rise in the stock's price. In this article, we'll delve into a detailed analysis of a Covered Call strategy for PepsiCo, exploring its potential returns, risks, and how it can fit into a broader investment portfolio.
This trade setup is a Covered Call strategy on PepsiCo, Inc. (PEP). Here's a breakdown of the trade:

1. Underlying Asset: The underlying asset for this trade is PepsiCo, Inc. (PEP). The last traded price of PEP is $187.53.

2. Covered Call Strategy: The strategy involves selling a call option while owning the underlying asset. This is known as a covered call strategy. The goal is to generate income (the premium received from selling the call) while potentially selling the stock if the price rises above the strike price.

3. Option Details: The call option being sold has a strike price of $190 and expires on August 4, 2023. This means that if PEP's price is above $190 on the expiration date, the option can be exercised, and you would have to sell your PepsiCo shares for $190 each. However, if you don't want to sell your shares and the price is above the strike price as the expiration date approaches, you have the option to "roll" your position. This involves buying back the current call option and selling another one with a later expiration date, and possibly a higher strike price. This can generate additional premium income and give the stock more time to potentially increase in value.

4. Premium: The premium received from selling the call option is $165. This is the income generated from the trade, which you get to keep regardless of what happens with PEP's price.

5. Breakeven Point: The breakeven point for this trade is $191.65. This is calculated as the strike price plus the premium received divided by the number of shares. If PEP's price is above this level at expiration, the trade will be at its maximum profit.

6. Risk: The maximum risk in a covered call strategy is if the stock price falls significantly. However, the premium received from selling the call option provides some downside protection.

7. Probability of Profit: The probability of making a profit on this trade, based on the delta of the option position, is 64.55%.

8. Delta and Theta: Delta is -0.3545, which means the option's price is expected to decrease by $0.3545 for each $1 increase in PEP's price. Theta is 0.0488, which means the option's price is expected to decrease by $0.0488 each day, all else being equal. These are measures of the option's sensitivity to changes in the stock price and time decay, respectively.

9. Calculating the yield:

The yield from the premium can be calculated as a return on the capital invested in the underlying shares. Here's how you can calculate it:

    1.  Capital Invested: The capital invested in the underlying shares is the price of the shares multiplied by the number of shares. In this case, it's 100 shares * $187.53/share = $18,753.

    2. Income from Premium: The income from the premium is $165.

    3.  Yield: The yield is the income from the premium divided by the capital invested, expressed as a percentage. So, the yield is ($165 / $18,753) * 100 = 0.88%.
However, this is the yield for the 22-day period until the option's expiration. If you want to annualize this yield to compare it with other annual returns, you can do so as follows:

 Annualized Yield: To annualize the yield, you first calculate the number of 22-day periods in a year, which is 365 / 22 = 16.59 periods. Then, you multiply the yield for one period by the number of periods in a year. So, the annualized yield is 0.88% * 16.59 = 14.6%.

So, the yield for this covered call strategy is 0.88% for the 22-day period, or 14.6% on an annualized basis.

Please note:
- this is a simplified calculation and actual results can vary based on a variety of factors.
- selling covered calls can generate income, but it also caps your upside potential because you may have to sell your stock if its price rises above the strike price. It's important to be comfortable with this trade-off before implementing a covered call strategy.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.