Markets

Starbucks traders looking for protection

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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