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Near-Term Put Activity Runs Hot on Starbucks Corporation (SBUX)

Bears flock toward SBUX weekly options

by 3/20/2013 11:06 AM
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Starbucks Corporation (NASDAQ:SBUX - 57.17) is caught in the bearish crosshairs today, as roughly 2,900 puts have changed hands so far -- a 52% mark-up from the equity's expected intraday put volume. On the other side of the trading fence, fewer than 2,300 calls have crossed the tape. Most popular has been the weekly 3/22 55-strike put, which has seen close to 1,900 contracts exchanged at a volume-weighted average price (VWAP) of $0.06.

The majority of these out-of-the-money puts traded at the ask price, and implied volatility has climbed 8 percentage points during the morning hours of the session -- both indications of buy-to-open activity. In other words, speculators are betting on the java giant to sink below $54.94 (strike price minus the VWAP) by the close this Friday, which is when these weekly options expire. This reflects a decrease of 3.9% from the stock's current price.

Prior to today, however, traders seemed to prefer SBUX calls over their bearish counterparts. The security's 20-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 1.96. Or in simpler terms, calls bought to open have almost doubled puts during the last four weeks.

Similarly, Schaeffer's put/call open interest ratio for SBUX sits at 0.93, indicating calls outnumber puts among options slated to expire within the next three months. This ratio ranks in the 45th percentile of its annual range, denoting a slightly healthier-than-usual appetite for near-term calls over puts lately.

From a technical standpoint, Starbucks has tacked on about 6.4% year-to-date, and has outshined the broader S&P 500 Index (SPX) on a relative-strength basis during the past month. Meanwhile, a look at the charts shows that the stock's most recent pullback was cushioned by its 40-day moving average, which has acted as a floor for the past few weeks. Still, even if the shares maintain their upward trajectory over the next couple of days, the most today's short-term bears will have to part with is the initial premium paid for their put purchases.


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