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Starbucks Option Bulls Cash In

SBUX call holders liquidated their winning positions

by 12/7/2012 9:26 AM
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The shares of Starbucks Corporation (NASDAQ:SBUX - 53.70) gapped higher yesterday, and are poised to end the week in territory not charted in more than four months. Against this backdrop, the stock's option bulls -- a dwindling group of late -- cashed in their proverbial chips on the coffee king.

During the course of the session, SBUX saw roughly 46,000 calls change hands -- about three times its average daily call volume, and twice the number of SBUX puts exchanged. Most popular were the now in-the-money weekly and December 52.50-strike calls, which saw about 11,200 and 4,800 contracts traded, respectively. The majority of the calls crossed at the bid price, and open interest plummeted at both strikes overnight, confirming our theory of post-rally profit-taking.

As alluded to before, it's the SBUX bears who've grown increasingly popular in recent weeks. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security has racked up a 10-day put/call volume ratio of 1.22, indicating that option buyers have picked up more SBUX puts than calls during the past two weeks. Even more telling, this ratio sits just nine percentage points from a 52-week high, implying that speculators are initiating bearish bets over bullish at a near annual-high clip.

Elsewhere on the Street, though, the analyst crowd is growing more optimistic. Currently, SBUX boasts 16 "strong buys" and one "buy" endorsement, compared to eight middling "holds" and not a single "sell" or worse rating. Plus, just yesterday analysts at Baird upgraded the stock to "outperform" from "neutral," and lifted their price target to $62 from $55, in response to the company's expansion plans.

Separately, Starbucks vowed to "pay a significant amount of corporation tax" -- about 20 million pounds -- in the U.K. during 2013 and 2014, "regardless of whether our company is profitable during these years." The company had been criticized recently for allegedly dodging corporate taxes across the pond.

Technically speaking, SBUX has added almost 17% in 2012, and has gained roughly 3.5% just this week. With a few layers of resistance now in the rearview, the stock's next intermediate-term target could be the $62 neighborhood, according to Schaeffer's Senior Options Strategist Tony Venosa, CMT.


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