Starbucks Corporation (SBUX) Options Traders, Analysts Gear Up for Earnings

An earnings miss could lead to a round of bearish analyst attention for Starbucks Corporation (SBUX)

Nov 1, 2016 at 11:51 AM
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Options traders are taking aim at Starbucks Corporation (NASDAQ:SBUX) ahead of the coffee specialist's earnings release Thursday evening. At last check, SBUX options volume was running in the 93rd percentile of its annual range, with both calls and puts trading at two times the norm for this point in the day. On the call side, the November 57.50 strike is leading the way, while the weekly 11/4 52.50-strike put is the most popular option on the other side of the aisle.

Digging deeper, it appears today's options buyers are paying up to place their bets, according to SBUX stock's 30-day at-the-money implied volatility of 25.7%, which ranks in the high 83nd annual percentile. This elevated reading comes despite SBUX's history of muted post-earnings moves, with the shares swinging less than 1% in three of the past four sessions immediately after earnings. This lack of volatility is further evidenced by the stock's Schaeffer's Volatility Scorecard (SVS) of just 7 -- meaning the options market has tended to seriously overprice the stock's ability to make large move on the charts in the past year. 

Looking back, there's been a clear call bias in SBUX's options pits in recent weeks. Specifically, the stock sports a 50-day call/put volume ratio of 3.06 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- a reading that ranks just 1 percentage point from a 12-month high. Said simply, there's been an extreme interest in SBUX calls in recent weeks. 

On the other hand, it looks like analysts are trimming their expectations for Starbucks ahead of earnings. Just this morning, in fact, Deutsche Bank cut its price target to $59 from $64. It appears SBUX is vulnerable to more bearish notes, as well -- especially if the company delivers disappointing earnings. For instance, the average 12-month price target stands at $64.60 -- a nearly 23% premium to current levels -- and 16 of 21 brokerage firms say SBUX is a "buy" or better. Another round of price-target cuts and/or downgrades could put pressure on SBUX stock. 

It's not as though Starbucks Corporation (NASDAQ:SBUX) has been performing well on the charts, either. The shares have been sliding ever since they hit a record high of $64 roughly one year ago, and earlier today tapped an annual low of $52.36. More disturbing still, SBUX shares just finished their first month below their 24-month -- or 2-year -- moving average since June 2009. At last check, the stock was off 1.1% at $52.48. 

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