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Starbucks' February Bulls Bet on a Post-Earnings Spike

Back-month calls were popular among SBUX traders

by 1/18/2013 9:23 AM
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Starbucks Corporation (NASDAQ:SBUX - 54.50) has been on the bearish radar lately, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The equity's 10-day put/call volume ratio sits at 1.84, indicating puts bought to open have almost doubled calls during the past couple of weeks. In fact, this ratio is just 1 percentage point shy of a yearly acme, meaning traders have been snapping up puts over calls at a near annual-high clip. As a result, the stock's Schaeffer's put/call volume ratio (SOIR) of 1.41 ranks higher than 80% of similar annual readings, reflecting a healthier-than-usual appetite for short-term puts over their bullish counterparts.

However, Thursday's session painted a much different picture in the options pits, as approximately 11,000 calls changed hands -- a 47% increase over the security's average single-session call volume. By comparison, around 7,600 puts were exchanged. Garnering notable attention was the February 52.50 call, where about 1,200 contracts traded at a volume-weighted average price (VWAP) of $2.79.

Digging deeper into the data, it looks as though the bulk of these in-the-money calls traded at the ask price, pointing to buyer-driven activity. This strike saw an overnight rise in open interest of 1,109 contracts, signaling most of yesterday's volume was comprised of new positions. In order for traders to secure a profit on these calls, SBUX must rise above $55.29 (strike price plus the VWAP) by February expiration. This breakeven rail represents a 1.4% increase over yesterday's closing price of $54.50. However, should the stock fall short of this goal, the most these call buyers risk is the initial premium paid.

On the technical front, the java giant has advanced more than 13% during the past year, while also outpacing the broader S&P 500 Index (SPX) by north of 15 percentage points over the last 60 sessions. What's more, the shares have recovered nearly 27% since tagging an annual low of $43.04 in August 2012.

It should also be noted that SBUX is on tap to report fiscal first-quarter earnings after the close on Jan. 24, and has topped consensus bottom-line estimates in three of the last four quarters. Currently, analysts are projecting a per-share profit of 57 cents. Today's February bulls may be hoping for another earnings surprise to the upside, which could propel the security even higher.


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