Starbucks (NYSE: SBUX) rose earlier this week on an upgrade by Morgan Stanley, but at least one options trading investor wants insurance.
OptionMONSTER‘s Depth Charge tracking system detected the purchase of 2,000 SBUX October 33 Puts for $2.76 and the sale of 4,000 SBUX October 29 Puts for $1.37, resulting in a cost of just 2 cents. Volume was more than three times open interest in both strikes.
The transaction, known as a ratio spread, is often used by investors who own a stock but are nervous about a potential drop. Instead of taking losses, they can simply buy shares at the lower strike price–something they may not mind doing if they are bullish on the name.
In the case of today’s trade, the spread will let them earn a maximum profit of 19,900% if SBUX closes at $29 on expiration. The gains will erode below that level and turn to losses if the coffee stock goes under $25. The shares haven’t traded that low since early September.
SBUX rose .88% to $34.31 in late morning trading today. It leapt to a four-year high on Monday after an upgrade by Morgan analyst John Glass, who cited opportunities to grow revenue with new products. He also put a $40 price target on the stock.