Starbucks Corporation (SBUX) Options Traders Bet on a Big Post-Earnings Move

Put option buyers have been active on Starbucks Corporation (SBUX) ahead of earnings

Jan 25, 2017 at 1:06 PM
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As Starbucks Corporation (NASDAQ:SBUX) prepares to report earnings tomorrow evening, options traders have been favoring puts over calls by an annual-high margin. Nevertheless, with the stock trading above multiple layers of technical support, bullish analyst ratings, and a history of post-earnings daily gains, these bearish speculators are swimming against the tide.

So far today, SBUX is up 0.4% at $58.67. The shares recently took a bounce off their 50-day moving average, and are extending their lead above their 200-day moving average, which previously acted as resistance in mid-2016. In addition, SBUX has broken out above a trendline connecting a series of lower highs from late 2015 through late 2016, and this level now looks to be acting as support for the shares.

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Despite this multi-layered technical support, option players still seem skeptical. SBUX's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is docked at a top-heavy 2.27. This reading sits at an annual peak, indicating option players have bought to open puts over calls at the fastest pace in a year. That said, given the stock's recent recovery from its fourth-quarter lows, it's possible that some of this put-buying activity represents pre-event hedging on the part of Starbucks shareholders.

Analysts, meanwhile, have a rosy view of SBUX. Of the 21 brokerage firms weighing in, 16 rate the shares a "buy" or better, with not a single "sell" to be found. In addition, the average 12-month price target of $64.73 represents a healthy 10% premium to the shares' current perch.

Over the last eight quarters, Starbucks Corporation (NASDAQ:SBUX) has averaged a single session post-earnings swing of 2.6%, regardless of direction. This time around, the options market is pricing in a significantly larger post-earnings swing of 5.8%. If SBUX lives up to these volatility expectations, an upside move of this size would bring the shares to $62.07 -- a new annual high -- while a drop of this magnitude would leave SBUX at $55.27, below the various layers of technical support mentioned above.

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