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Starbucks Corporation (SBUX) Traders Split the Pole Ahead of Earnings

SBUX will reveal its fiscal third-quarter report after tonight's close

by 7/25/2013 1:36 PM
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Starbucks Corporation (NASDAQ:SBUX) is on tap to unveil its quarterly earnings report after tonight's close. As such, call and put volume have both accelerated in today's session, trading at 2.6 times and 3.6 times the average intraday volume, respectively. Traders from both sides of the fence are targeting the $67.50 area, with the August 67.50 call and the October 67.50 put emerging as the day's two most active strikes. The majority of the volume at each call has crossed at the ask price, implied volatility is on the rise, and data from the International Securities Exchange (ISE) suggests buy-to-open activity for both strikes.

The purchasers of the shorter-term August 67.50 call are hoping a solid quarterly showing tonight will push SBUX back above $67.50. More specifically, the volume-weighted average price (VWAP) for the at-the-money (ATM) calls is $1.43, making breakeven $68.93 (strike price plus VWAP), or 2.1% above the equity's current perch at $67.49. These speculators weren't afraid to pay a little more for their bullish bets, as 30-day ATM implied volatility on SBUX has jumped 1.2 percentage points, or 5%, to 25.6% today.

Based on present trading levels, the October 67.50 put is in the money. However, the options will not become profitable unless Starbucks breaches breakeven at $64.36 (strike less the VWAP of $3.14) ahead of the close on Oct. 18. It's a flip of the coin as to whether this put will remain in the money for the duration of its lifetime, according to the options market, as delta is docked squarely at negative 0.50, or 50%.

On the charts, SBUX has tacked on a formidable 25.7% in 2013. The equity entered a brief period of consolidation after tagging a record peak of $69.90 on July 15, but seems to have found a technical friend in the form of its 32-day moving average.

Fundamentally, Starbucks Corporation (NASDAQ:SBUX) has bested or matched analysts' bottom-line expectations in seven of the last eight quarters. The price action following its results is more of a mixed bag. On average, the equity has added 0.5%, and dropped 2.1%, in the subsequent day and week, respectively. For SBUX's fiscal third quarter, Wall Street is calling for earnings of 53 cents per share -- a dime higher than its year-ago profit.


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