There’s been an awakening. Have you felt it? You’ve certainly seen it if Starbucks Corporation (NASDAQ:SBUX) is on your watch list. After months of dithering, the ubiquitous coffee company is finally on the move higher. And while the final destination is unknown, an all-time high of $64 for SBUX stock is as logical a target as any.
This week’s ascent places Starbucks shares firmly above all major moving averages. Moreover, they’re all rising which confirms the dominance of buyers across all time frames.
What’s particularly telling is the stock’s breach of the descending trendline that has defined its southward slog since SBUX peaked in October 2015. As illustrated below, this resistance zone has halted no less than six recovery attempts over the past 18 months.
Fortunately, this week’s breakout bid succeeded where all the others failed. Above-average volume accompanied the launch suggesting buyers are flocking to SBUX. This adds legitimacy to the move increasing the likelihood that the breakout sticks. The RSI indicator lifted to the overbought zone for the first time since last November helping to confirm the strength of this move.
The wild card for SBUX stock is the upcoming earning announcement slated for April 27th after market close. Positive technicals melt in the face of disappointing earnings every time.
So here’s to hoping the company delivers so this breakout pattern doesn’t morph into a classic bull trap.
The Trade on SBUX Stock
If you’re looking to lean bullish into SBUX earnings, but want to increase your margin of error, consider selling a May $57.50/$55 bull put spread. The short vertical consists of selling to open the May $57.50 put while buying the May $55 put for a net credit of 37 cents.
If SBUX stock sits above $57.50 at expiration, you will capture the max reward of 37 cents. The risk is limited to the distance between strikes minus the net credit, or $2.13, and will be forfeited if the stock falls below $55.
By risking $2.13 to capture 37 cents, the spread offers a respectable 17.4% return.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.