Starbucks Corporation (SBUX) Option Bulls Buzz On China Plans

Starbucks Corporation (NASDAQ:SBUX) option bulls are buzzing after the promotion of Starbucks China's first CEO, and even negative analyst attention can't keep the coffee stock down

Oct 19, 2016 at 11:37 AM
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Starbucks Corporation (NASDAQ:SBUX) is buzzing after the promotion of executive Belinda Wong to the role of Starbucks China's first CEO. Wong will oversee the coffee chain as it works to more than double its Chinese locations to 5,000 by 2021. Meanwhile, RBC Capital cut its price target for SBUX to $64 from $68, and lowered its expectations for same-store sales growth and 2017 earnings. Nevertheless, SBUX shares are higher, and option bulls are betting on more upside in the near term.

SBUX is up 1.8% at $53.50. This is a welcome change of pace for SBUX, which is down 11% so far in 2016, and hit an annual low of $52.59 yesterday. Since the beginning of October, SBUX has been pressured by its 20-day moving average, though the stock is set to topple that trendline today. SBUX could also find support in the $52-$54 range, which has already contained several pullbacks this year.

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In the options pits, SBUX calls are trading at twice their average intraday rate -- outpacing puts more than 2-to-1 -- and call volume is set to hit the 93rd percentile of its annual range. The October 53.50 call is today's most active option, and buyers are betting on a continued upside by expiration on Friday. The November 55 call, which encompasses SBUX's tentative earnings date on Nov. 3, has also seen significant buy-to-open activity today, according to Trade-Alert.

Widening the scope, SBUX option players have been especially bullish as of late, with SBUX's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 2.80 sitting higher than 95% of all other readings from the past year. What's more, SBUX's Schaeffer's put/call open interest ratio (SOIR) of 0.40 sits just 1 percentage point from an annual low, suggesting near-term option traders have rarely been more call-skewed in the last 12 months. Drilling down, SBUX's top open interest position is the October 57.50 call, which represents a nearly 7.4% premium to SBUX's current perch.

However, Starbucks Corporation (NASDAQ:SBUX) isn't without its skeptics, with short interest up 21.7% over the last reporting period. During this same time period, the December 55 call saw the largest open interest increase of any SBUX option, with notable buy-to-open action, suggesting potential hedging by short sellers. Whether "vanilla" bulls or shorts seeking options protection, the most these option buyers have to lose on the calls is the original premium paid.

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