Short-Term Traders Skeptical of Starbucks Corporation
) -- which has dominated the headlines recently due to CEO Howard
statement on guns
-- received a price-target hike to $85 from $82 at BMO this
morning. This shouldn't be entirely surprising, given the shares'
42% year-to-date gains, and yesterday's record high of $77.85. In
fact, during the past 40 sessions, the coffee king has outperformed
(INDEXSP:.INX ) by more than 13 percentage points.
Speaking of yesterday, SBUX's options pits were busy, with call and put volume both about doubling the norm. This included the initiation of a 4,500-contract, bullishly skewed, three-legged spread, constructed around the April series. In terms of individual strikes, however, the most actively traded was the October 75 put, where north of 3,500 contracts changed hands.
Digging deeper, over two-thirds of the action at that strike occurred on a block trade of 2,668 contracts, which traded above the ask price, at $1.03 each -- suggesting they were purchased. Open interest at the strike added roughly 3,100 contracts overnight, as well, so new long positions were likely created. In buying the Starbucks puts to open, the speculator is betting the shares -- currently sitting at $76.50 -- will breach $73.97 (strike price less premium paid) before the close on October 18, when the soon-to-be front-month options expire. If the stock continues to hover above the strike, however, the trader risks forfeiting his initial cash outlay.
At the same time, given Starbucks Corporation's technical tenacity, Thursday's big put buyer and his cohorts may not all be of the bearish breed. In fact, they may be shareholders seeking short-term protection on their long stock positions, in case the java giant takes an unexpected tumble. SBUX is tentatively scheduled to release earnings at the end of October, after October-dated options expire.
This article by Alex Eppstein was originally published on Schaeffer's Investment Research .
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