Starbucks Option Traders Locked in a 244% Profit in Under 3 Months

Shorts were in covering mode upon our recommendation

by Emma Duncan

Published on Aug 22, 2019 at 3:38 PM

Subscribers to Schaeffer's PowerTrend options recommendation service just scored a 244% profit on the Starbucks Corporation (NASDAQ:SBUX) August 75 call. Below, we'll explain why we expected an outsized move for SBUX, and how the winning options trade unfolded with our two partial closes.

When we recommended our SBUX call on Tuesday, May 21, the stock was trending higher on the charts. The coffee chain was consolidating and had briefly pulled back to the $75 floor of support, making it an opportune time to bet on the equity's next surge higher.

Also acting as support was the rising 40-day moving average, which in the past had performed as resistance toward the shares. The company was also eyeing a potentially volatile earnings report in late July, and short sellers were in covering mode. Specifically, at the stock's average pace of trading, and with 22.5 million shares sold short, it would take three days for shorts to buy back their bearish bets.

Short-term traders were also unusually put-skewed at the time of our recommendation. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) came in at 1.28, which ranked in a lofty annual percentile. Plus, Starbucks stock was overdue for upgrades, with 12 of 23 analysts sporting a "hold" recommendation.

Following our recommendation in late May, SBUX continued its steady climb higher on the charts. This allowed traders to quickly mark a 50% partial closeout on Wednesday, July 3, locking in an initial 153% profit. The shares then saw a post-earning bull gap on July 25, which, combined with a slew of bull notes from analysts, sent the shares soaring. On Friday, Aug. 16, traders were able close the final 50% of our recommended call with a 334% profit, locking in a 244% net profit in just under three months.

Daily SBUX with Entry and Exit Dates

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