Go Long Starbucks Corporation (SBUX) Stock for Free!

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Starbucks Corporation (NASDAQ:SBUX) just made headlines yesterday, with reports saying the coffee purveyor is a possible suitor for Panera Bread Co (NASDAQ:PNRA), which is exploring putting itself up for sale. But if it doesn’t happen, don’t fret — SBUX stock has many fans on Wall Street.

Go Long Starbucks Corporation (SBUX) Stock for Free!

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Starbucks has even more fans on Main Street. In fact, the only real knock I’ve seen in headlines is the throughput of their stores. Analysts reference the long lines as a bad thing. While it’s something they need to get hammered out, it’s also a sign of great customer stickiness — and a potential upside in sales upon resolution of said wrinkle.

Fundamentally, Starbucks has excellent management pedigree, so even with what seems like a shake-up at the top, SBUX should be able to execute on plan — perhaps even better with fewer distractions. Stores are ubiquitous, yet they all thrive even when they are within a five-minute walk from each other.

As the joke goes: “They’re putting a Starbucks in my Starbucks!”

All this tells me that as long as equity markets in general hold up, SBUX stock should present bullish opportunities.

SBUX stock chart monthly view
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From a technical standpoint, Starbucks shares are showing upside potential on the weekly and monthly time frames. Often enough, the slower the time frame, the bigger the move of the patterns in play.

I don’t like chasing price targets. Analyst upgrades almost always lag stock moves. Instead, I prefer selling risk against unlikely scenarios and profit from the premium decay. I like to say that I’m selling lotto tickets that are designed to be losers to those who buy them.

Today, I want to capture the upside with a pair trade that sets me long Starbucks for free.

How to Trade SBUX Stock

The bet: Buy the SBUX May $60 call for 70 cents per contract. If the stock rallies into the upside potential in the next few weeks, then I stand to gain from the appreciation in my bought calls.

Time is my enemy, so I need SBUX stock to start moving soon. I chose to buy the calls near current price so I’d only need to guess direction, not the magnitude of the move.

To eliminate my out-of-pocket risk, I will sell downside risk against proven support levels.

The bank: Sell the SBUX Jan 2018 $50 put. This is a bullish trade for which I collect $1.50 per contract to open. This trade has an 85% theoretical chance of success, so as long as Starbucks stock stays above my sold put, the premium will expire in my favor and for maximum gains.

Taking both trades results in a 75-cent credit. As long as SBUX stays above my sold puts, I will profit — even if the stock does nothing. In addition, any premium I recapture from selling the calls would be pure profit.

Selling options is risky. Only engage in this trade if you’re willing and able to absorb losses if SBUX stock falls below $48.50.

Learn options as easy as 1-2-3 here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/go-long-starbucks-corporation-sbux-stock-for-free/.

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