Pre-Earnings Option Bears Target Starbucks Corporation (SBUX)

Starbucks Corporation will report quarterly earnings after tonight's close

by Karee Venema

Published on Oct 30, 2014 at 2:53 PM
Updated on Apr 20, 2015 at 5:32 PM

Option bears have set their sights on Starbucks Corporation (NASDAQ:SBUX) in the months leading up to the company's quarterly earnings report, which is slated for release after tonight's close. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 50-day put/call volume ratio of 1.17 ranks higher than all other readings taken in the past year.

Echoing this preference for puts is the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.16, which ranks higher than 79% of similar readings taken in the past year. Simply stated, short-term speculators are more put-skewed than usual toward SBUX.

In the front-month series, specifically, peak put open interest can be found at the November 72.50 strike, where 4,808 contracts are currently in residence. The majority of positions here have been bought to open in recent months, meaning speculators expect SBUX to retreat south of $72.50 by the close on Friday, Nov. 21, when the options expire.

This accelerated put volume is being continued in today's session, as well, with the contracts crossing the tape at a rate 1.8 times the intraday average. Buy-to-open activity has been detected at the equity's weekly 10/31 75-strike put, as eleventh-hour traders roll the dice on a quick retreat below the $75 mark following tonight's earnings announcement. Should SBUX maintain its perch atop the strike through tomorrow's close -- when the weekly series expires -- the most the speculators stand to lose is the initial premium paid.

Looking back over the past four quarters, SBUX has averaged a modest single-session post-earnings gain of 0.23%. The options market is pricing in a bigger move of 3%, and considering the weekly 10/31 77-strike put is pricing in higher implied volatility than the call (76.2% versus 75.3%), it seems like it is expecting the action to resolve to the downside.

Longer term, Starbucks Corporation (NASDAQ:SBUX) has failed to make any major moves on the charts in 2014, with the shares down 1.3% to trade at $77.36. For the java giant's fiscal fourth quarter, Wall Street is calling for a per-share profit of 74 cents.


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