SBUX Earnings Preview: 2 Trades for Starbucks Stock

Options traders are getting cautious ahead of Starbucks' Q4 report

Coffee king Starbucks Corporation (SBUX) is slated to serve up its fourth-quarter earnings report after the close on Thursday, and SBUX stockholders are looking for the share to continue their winning streak. The Starbucks stock price has risen more than 53% so far in 2015, and SBUX bullish sentiment backdrop is predicting more of the same going forward.

Getting straight to the numbers, Wall Street will be looking for a profit of 43 cents per share of Starbucks stock — a 16% improvement over the same quarter last year. Revenue is expected to rise 17.1% year-over-year.

That said, EarningsWhisper.com places Starbucks’ whisper number a penny higher than the Street at earnings 44 cents per share. The added penny would be icing on the cake for Starbucks stock. The company has a strong fundamental backdrop, matching or beating the consensus estimate for the past four quarters.

Bullish sentiment is pervasive throughout the brokerage community for Starbucks stock. For instance, data from Thomson/First Call reveals 24 “buy” ratings, four “holds,” and no “sell” ratings on Starbucks stock. However, there is plenty of room for improvement, as the current 12-month consensus target of $65 per share represents a meager premium of just 3.5% to SBUX’s current perch.

Options traders, meanwhile, have become quite anxious regarding SBUX stock’s short-term prospects. For instance, the October/November put/call open interest ratio for Starbucks stock arrives at 1.03. This ratio rises even higher to 1.93 for the weekly October 30 series, with puts nearly doubling calls among options most influenced by Starbucks’ quarterly earnings report.

10-28-2015 SBUX
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Overall, weekly October 30 series option implieds are pricing in a potential post-earnings move of about 5.2% for SBUX stock. This places the upper bound at $66.32, while the lower bound lies at $59.68.

A breakout above the $64 to $65 region would be a major coup for SBUX bulls, while support should hold firm in the $60 region.  

2 Trades for Starbucks Stock

Call Spread: Traders looking to join the brokerage community and bet bullishly on SBUX might want to consider entering a November $63/$65 bull call spread. At last check, this spread was offered at 85 cents, or $85 per pair of contracts. Breakeven lies at $63.85, while a maximum profit of $1.15, or $115 per pair of contracts, is possible if SBUX closes at or above $65 when November options expire.

Put Sell: Alternately, if you’re a bit cautious given the wealth of put activity in the weekly October 30 series, you might want to  look into a bull put sell position. Along those lines, a weekly October $59 put sell might be a way to capitalize on SBUX’s strong technical backdrop.

At last check, the October 59 put was bid at 47 cents, or $47 per contract. The upside to this put sell strategy is that you keep the premium as long as SBUX stock closes above $59 when October options expire at the end of this week. The downside is that, if SBUX trades below $59 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $59 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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