Starbucks (SBUX) – Trade Idea

Company Description

Starbucks Corporation (Starbucks) is a roaster, marketer and retailer of coffee. As of October 2, 2016, the Company operated in 75 countries. The Company operates through four segments: Americas, which is inclusive of the United States, Canada, and Latin America; China/Asia Pacific (CAP); Europe, Middle East, and Africa (EMEA), and Channel Development. The Company’s Americas, CAP, and EMEA segments include both company-operated and licensed stores. Its Channel Development segment includes roasted whole bean and ground coffees, Tazo teas, Starbucks- and Tazo-branded single-serve products, a range of ready-to-drink beverages, such as Frappuccino, Starbucks Doubleshot and Starbucks Refreshers beverages and other branded products sold across the world through channels, such as grocery stores, warehouse clubs, specialty retailers, convenience stores and the United States foodservice accounts. Source: Reuters


Option Pricing

  • Implied Volatility (expected price movement) for short-dated options is 27%
  • Realized Volatility (historic price movement) for short-dated options is 21%
  • Implied Volatility Percentile for short-dated options is 82%

Trade Idea

Starbucks stock has taken a breather since touching an all-time high of $99.72 in late July. Currently, SBUX shares are garnering downward momentum with the shares trading below the 21-day and 10-day exponential moving averages.

In addition, we can spot a descending triangle chart pattern. Descending triangle chart patterns are a bearish formation that usually forms during a downtrend as a continuation pattern.

With these factors in mind, we believe that SBUX is likely to trade lower in the next 46 days. Note that the company is set to report earnings on October 30, 2019. Traders may want to close the position ahead of this event. Find below an example on how you could trade SBUX if you are bearishly disposed:

Buy115 Nov87.5Put
Sell115 Nov82.50Put

Break-even on Nov expiration:

  • Profits of up to $3.40 between 85.90 and 82.50 with max gain of $3.40 at 82.50 or lower
  • Losses of up to $1.60 between 85.90 and 87.50 with max loss of $1.60 above 87.50

PnL Graph

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