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Starbucks Fans Flock to Front-Month Call Options

SBUX speculators scooped up calls ahead of earnings

by 1/23/2013 9:26 AM
Stocks quoted in this article:

Option traders showed a relatively rare preference for Starbucks Corporation (NASDAQ:SBUX - 54.99) calls on Tuesday, with single-session volume nearly doubling the norm. Specifically, the coffee king saw roughly 15,000 of these typically bullish bets change hands, compared to its average daily volume of just 8,100 calls. Meanwhile, fewer than 9,000 SBUX puts crossed the tape.

Attracting the most attention was the newly front-month February 55 call, which saw nearly 3,100 contracts traded at a volume-weighted average price (VWAP) of $1.48. The majority of the calls changed hands at the ask price, and open interest increased overnight, hinting at buy-to-open activity.

By purchasing the at-the-money calls to open, the buyers expect SBUX to muscle higher in the short term. More specifically, the buyers will begin to profit if SBUX conquers the $56.48 level (strike plus VWAP) within the next few weeks -- which encompasses the company's turn in the earnings spotlight tomorrow night. However, even if SBUX takes a turn for the worse, the most the buyers can lose is the initial premium paid for the calls.

As alluded to earlier, yesterday's appetite for calls runs counter to the growing trend seen on the major options exchanges. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 1.62. What's more, this reading stands just 4 percentage points from a 52-week peak, implying that option buyers have initiated bearish bets over bullish at a near annual-high clip during the past couple of weeks.

Echoing that trend, SBUX sports a Schaeffer's put/call open interest ratio (SOIR) of 1.32, indicating that puts outnumber calls among options with a shelf-life of three months or less. In fact, this ratio sits higher than 75% of all comparable readings of the past year, suggesting short-term options players have been more put-heavy just a quarter of the time.

Technically speaking, SBUX has added 24% since skimming the $44 level in mid-to-late October, ushered higher atop its 10-day and 20-day moving averages. More recently, though, the stock has struggled to overtake the $56 marker, which has acted as a speed bump since early May.

Fundamentally, the firm has bested the Street's bottom-line earnings estimates in three of the past four quarters, according to Thomson Reuters. Another stronger-than-expected earnings report tomorrow could help SBUX conquer its technical demons -- and put the aforementioned call buyers in the money.


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