Starbucks popped on an upgrade this week, but one investor wants insurance.
optionMONSTER's Depth Charge tracking system detected the purchase of 2,000 October 33 puts for $2.76 and the sale of 4,000 October 29 puts for $1.37, resulting in a cost of just $0.02. Volume was more than three times open interest in both strikes.
The transaction, known as a ratio spread, is often used by investors who own a stock but are nervous about a potential drop. Instead of taking losses, they can simply buy shares at the lower strike price--something they may not mind doing if they are bullish on the name.
In the case of today's trade, the spread will let them earn a maximum profit of 19,900 percent if SBUX closes at $29 on expiration. The gains will erode below that level and turn to losses if the coffee stock goes under $25. The shares haven't traded that low since early September.
SBUX rose 0.88 percent to $34.31 in late morning trading. It leapt to a four-year high on Monday after an upgrade by Morgan Stanley analyst John Glass, who cited opportunities to grow revenue with new products. He also put a $40 price target on the stock.
Overall option volume in the name is slightly above average, and puts outnumber calls by 3 to 1, according to the Depth Charge.
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