Trades

Keurig Dr Pepper (KDP) Might Be a UFO!

Dino Silvestro

28 Aug 2025 • 6 min read

A green alien wearing a Groucho Marx disguise and holding a glass of hot, fizzy coffee soda and asking, “Is UFO?”

I decided to try some of this new Dr Peet Pepper I’ve been hearing about, but it doesn’t seem quite right…maybe because it's a UFO?! But before I discuss that…

What’s the Word on the Street?

As of me writing this, the market is mostly up (minus the Dow, which is down/flat), because of Nvidia's earnings affirming companies continued spending on AI.

With that behind us, the market's next hurdle is Friday's PCE (Personal Consumption Expenditures) release. That is the Fed's preferred inflation measure and might determine how aggressive they will be when it comes time to cut interest rates (with the first cut expected next month).

Keurig Dr Pepper (KDP)

Slide from KDP for investors regarding the plan for acquiring JDE Peet’s

What Is It?

Keurig Dr Pepper, Inc. engages in the manufacture, marketing, distribution, and sales of non-alcoholic beverages. It operates through the following segments: U.S. Refreshment Beverages, U.S. Coffee, and International. The U.S. Refreshment Beverages segment manufactures and distributes beverage concentrates, syrups, and finished beverages including the brands Dr Pepper, Canada Dry, Mott’s, Snapple, A&W, 7UP, Sunkist soda, Squirt, Hawaiian Punch, Core Hydration, Bai, C4 Energy, Clamato, Evian, Yoo-Hoo, Big Red, and Vita Coco. The U.S. Coffee segment involves single serve brewers, specialty, hot and iced varieties, and ready-to-drink beverages. The International segment includes sales in Canada, Mexico, and other markets. The company was founded in 2018 and is headquartered in Burlington, MA. The listed name for KDP is Keurig Dr Pepper Inc. Common Stock.

Why Is It a Possible UFO?

Primarily its current share price relative to its fair value, what other option traders expect, and its volatility are the reasons KDP could be a UFO.

What About Recent News?

KDP announced this week that they are acquiring JD Peet's for $18 billion in an attempt to combine and then split into 2 separate companies. Investors are less than thrilled with the idea and have punished the stock. The plan is to boost earnings by focusing on cost synergies and geographic expansion, but there could be hurdles to overcome. Despite those potential hurdles, investors tend to overreact, which is why I see the opportunity for a quick trade.

What’s the Current Price?

Year to date line chart showing KDP falling 8.05%

KDP hasn't fared particularly well this year, but by looking at the above line chart, you'll notice most of that was in the past week (~16%).

What’s the Fair Value?

I’d first like to emphasize that fair value is subjective. Many analysts at many banks and institutions rate stocks differently and assign fair value in their own unique way. So, what I like to do is take all the recent fair values since the most recent earnings report and average them. In this case…

Since KDP’s most recent earnings report on 07/24/2025, it has received 4 ratings and taking the average, the fair value might be somewhere around: $34.50.

2 ratings are a Buy, 1 is a Hold, and the Morningstar rating is unknown. The lowest price target is $30, while the highest is $38.

What Do Options Traders Expect?

KDP Calls and Puts for the October 17th expiration

Calls are trading over equidistant Puts, which means traders think there is a chance to the upside. You can see because… forget about the green columns and focus on the red. Notice how on the right side for the $28 Put it says $0.40, it’s $0.55 for the equidistant Call at $31.

The premium (the credit you receive for executing the trade) is currently less for selling Puts, as opposed to selling Calls. Basically because of that, option traders expect the stock to go up, rather than down.

How About Volatility?

Line chart showing KDP's volatility over the past year

The IV rank (the purple line) for KDP (stock price in blue) is currently hovering around 61.05, which is fairly high (IV rank goes from 0-100). This makes short strategies (which are what I prefer) more attractive.

What's the Trade?

My preferred trade is a variation of the wheel without the rolling, AKA cash-secured puts. I typically like to target stocks that offer a dividend and are below fair value.

Why a dividend? If the trade results in assignment and I’m on the hook for X amount of shares, I can at least be satisfied knowing I picked a (hopefully under fair value) company that will pay me a small amount while I run the other side of the trade AKA covered calls.

KDP does offer a dividend with a yield of 3.10%.

It’s a fairly low-risk strategy (all options trading is risky!), that has a higher probability of success, but requires a higher amount of collateral.

So if you saw the most recent image above, I already STO (sold to open) 5 contracts of the $28 Put for the October 17th expiration. I like to have a DTE (Days To Expiration) that is around ~45 days.

When the trade reaches 50% profit I will buy it back. I don’t like to be greedy and go for more profit, because I would rather not waste my time being in a trade for too long.

What About Alternative Trade Ideas?

If the collateral requirement is too high, another idea is a put credit spread. You would sell a put at a strike below the current share price and then buy a put at a lower strike than the put you sold. By doing so, you will avoid the collateral requirement of a cash-secured put, but the credit received will be smaller. Also, if the trade goes sideways, you will not be assigned shares so no collecting dividends and running covered calls afterwards.
Just invest! 1 share or even fractional shares are a way to get a foothold in a stock that you think might increase in value.

Completed Trades

Wait…Where Are the Candlesticks? And All the Other Indicators?

I know many traders love their candlesticks and a ton of indicators. I prefer simplicity. Candlesticks aren’t necessary unless you’re the kind of trader that wants to try and pick the perfect moment to execute a trade, and even then it’s not a sure thing.

As for indicators, there are a ton. Some of them work sometimes. None are perfect. I don’t want to get bogged down with too many. You’ll drive yourself crazy looking at too many of them, so find a handful you like and stick with those.

Disclosures

I currently have an open trade with KDP (as mentioned in this post).
No trade is a sure thing. There is always risk involved.
This blog post is not meant to take the place of financial advice, but hopefully acts as a guide for learning or informational purposes.