PepsiCo’s $22M Ratio Call Diagonal Spread Signals Big Bullish Bet Ahead of Q3 Earnings

Yesterday’s markets weren’t good. 

All three major indexes lost ground on the day—the Dow lost 2.19%, the S&P 500 was down 1.52%, and the Nasdaq Composite was off 1.74%—as investors worried about the escalating conflict in Iran.  

As I write this Friday morning before the markets open, Microsoft’s (MSFT) strong Q3 2026 results have futures in positive territory. Whether they stay positive depends on what the federal government reports for the U.S. core personal consumption expenditures index, the Federal Reserve’s key inflation number. Economists expect the annual rate to contract by 10 basis points to 3.3%. 

After yesterday’s decline, the S&P 500 is up just 6.9% in 2026, after jumping out to a 11.3% gain through the first five months of the year. It’s in real danger of losing more of these gains over the final five months of 2026. 

I continue to be skeptical that the markets will remain detached from the economic woes facing most Americans. I hope I’m wrong. 

In Thursday’s options markets, the volume was 62.37 million, just shy of the 90-day average. Calls outnumbered puts 54% to 46%. Options expiring in six days or more accounted for 39% of the volume; this is where I like to focus my attention. 

Yesterday’s unusual options activity wasn’t anything to write home about, with just two Vol/OI (volume-to-open interest) ratios over 100--Sellas Life Sciences (SLS) at 109.02 and Infosys (INFY) at 104.51. 

As I examine yesterday’s activity, PepsiCo’s (PEP) Oct. 16 $155 call had the 18th-highest Vol/OI ratio at 29.34. However, it is the call’s volume that’s caught my interest. 

Read on. I’ll tell you why. 

The PepsiCo Call Option in Question

There are three things I notice about this particular call option: 

1) The volume of 40,487 was 42% of PepsiCo’s daily total of 97,549. 

2) The daily total was the fifth-highest in the past three months. 

3) The $155 call volume was 89% of PepsiCo’s 30-day average.  

A trader/investor made a strong conviction bet on PepsiCo’s rebound. Down 9% over the past five years, yesterday’s bet could be indicative of good things to come.

The Woes Facing PepsiCo

The Oct. 16 $155 call expires in 79 days, eight days after PepsiCo reports its Q3 2026 results. The company’s delivered EPS surprises in three of the last four quarterly reports. However, it missed the street’s EPS estimate when it reported Q2 2026 results on July 9 before the markets opened; PEP shares closed 3.3% lower on the day. 

Long-time PepsiCo shareholders have paid for the company’s eight consecutive quarters of price increases in 2022 and 2023. Consumers went elsewhere for their snacking and beverage needs. I remember thinking at the time that these increases would likely backfire. Coca-Cola (KO) has been a big beneficiary of PepsiCo’s shortsightedness. 

From PepsiCo’s all-time high of $196.88 on May 1, 2023, its shares have lost 27%, while KO stock is up 39% and the S&P 500 has gained 75% in the same period.

In September 2025, activist investor Elliott Investment Management announced it had taken a $4 billion position in PepsiCo, suggesting several ways the company could improve its profitability and growth. On Dec. 8, 2025, PepsiCo and Elliott agreed to a restructuring plan intended to create shareholder value. Initiatives include cutting the number of products sold in the U.S. by 20%, targeted price reductions which began in earnest in the spring, and ongoing efforts to increase its operating efficiencies. 

If the turnaround is gaining traction, you wouldn’t know it by the share price, which has bobbed up and down since Elliott’s announcement last September; the stock is basically flat since. 

Nonetheless, yesterday’s unusually active Oct. 16 $155 call suggests a trader/investor feels there’s enough meat on the bone to make a bullish options bet on PepsiCo. 

The Bullish Options Strategy in Play 

While the trade sizes for the three trades shown above are partially hidden, I can assure you that they are 40,000, 20,000, and 20,000. As you can see, the trade for 40,000 is for the Oct. 16 $155 call. It accounted for 98.8% of the volume for the $155 strike price. 

One of the two 20,000-contract trades is also a 79-day DTE (days to expiration); only the strike price is $145. The final 20,000-contract trade is for a Sept. 18 $155 call. 

You’ll notice that all three trades took place yesterday at 10:59 a.m. ET. That tells me that the three trades were all part of one specialized Ratio Call Diagonal Spread options strategy. In this case, the ratio is 2:1:1, or 40,000:20,000:20,000.

The easiest way to understand this strategy is to break it down into three bets. 

Three Bets Lead to Big PepsiCo Profits

The first bet involves the trader/investor buying $12.04 million of Oct. 16 $155 calls at $301 per contract. Here’s how it looks early in Thursday trading.

The ask price of $2.65 is slightly less than the $3.01 paid yesterday. The ask price is a reasonable 1.87% of the share price. The breakeven is $157.65, which means the trader/investor makes money if it gains more than 11.49% by Oct. 16. Given the expected move is just 7.9%, the likelihood of breaking even is just 18.82%. 

Before questioning why someone would make such a bet, let’s consider the other two bets. 

The second bet is to sell 20,000 Sept. 18 $155 calls for $3.24 million in premium income. That lowers the cost of the Oct. 16 $155 calls by 27%; not an insignificant amount. The risk here is that PepsiCo announces shortly before the September expiration that Berkshire Hathaway (BRK.B) sold all of its Coca-Cola stake and put it into PEP stock—the shares rocket 25% higher to $175. The buyer of those calls could exercise their right to buy at $155. On this bet, the trader/investor would be out $36.76 million [$175 share price - $155 strike price - $1.62 bid price * 20,000 * 100].  

But that’s not the entire story. 

The third bet is to buy 20,000 Oct. 16 $145 calls, which are closer to being ITM (in the money), therefore costing $13.12 million, $1.08 million more than the 40,000 Oct. 16 $155 calls, for half the number of contracts. 

Assuming the Berkshire Hathaway event happens and PEP is $175 on Oct. 16, here’s how the trader/investor fares from this ratio call diagonal spread.

Bet 1 - $67.96 million profit [$175 share price - $155 strike price - $3.01 trade price * 40,000 * 100].

Bet 2 - As mentioned earlier, they would be out $36.76 million; and 

Bet 3 - $46.88 million profit [$175 share price - $145 strike price - $6.56 trade price * 20,000 * 100].

Ultimately, the bet would generate a $78.08 million profit. If at the Sept. 18 and Oct. 16 expiration dates, the share price is $165, the profit would be $38.08 million; at $155, it would be a $1.92 million loss; and at $145, the loss would be $21.92 million. The breakeven is about $155.50.  

It’s an interesting bet.