Business may not be frothy hot at Starbucks Corporation (NASDAQ:SBUX) by the standards of days gone by. But for bullish investors, using a long butterfly strategy off of the Starbucks stock options menu offers a nice blend of reduced and limited risk with sweet profit potential worthy of making growth stock traders blush. Let me explain.
Let’s face it, Starbucks stock isn’t the growth juggernaut it once was. The company’s most recent earnings report in early November put hopes for a growth resurrection on ice. But that’s quite okay.
At the end of the day, Starbucks isn’t exactly going out of business. Rather, the company continues to make successful strides building its coffee empire overseas in major markets like China.
So while overly-caffeinated momentum traders may not be impressed with SBUX stock, Starbucks is still making a favorable impression to others like me; both off and on the price chart.
Starbucks Stock Weekly Price Chart
It’s been awhile since investors last lined up to chase a frothy-looking Starbucks stock. In fact, it’s been more than two years.
Over that period shares of SBUX have put together a sizable corrective base, which puts it in stronger technical position for Wall Street to rotate back into and show some favor, once more, for a still out-of-flavor name.
Coupled with one failed breakout attempt, but followed up by a critical failure to sink shares lower out of a bear flag; this strategist is emboldened with SBUX’s prospects.
Having said that, the forecast is for a second base breakout and more durable bid in Starbucks stock — although it’s also probably not going to be a ‘triple espresso shot’ style move higher like days of yore.
SBUX Stock Moderately Bullish Butterfly
Given our view Starbucks stock can continue to rally to fresh highs, but with less froth and likely cooler gains for investors, I like the idea of positioning with bullishly-placed long call butterfly position centered at the prior highs.
Reviewing the SBUX options board, the February $62.50/$65/$67.50 call combination for 27 cents with shares at $60.03 is favored. This particular spread limits risk to less than 0.50% of Starbucks stock risk and offers a profit range from $62.77 to $67.23, with a max gain of $2.23 if shares land at $65 on expiration.
The real risk in using this spread is if traders anticipate bigger upside in Starbucks stock as the paid debit will result in a loss above the $67.50 call. But for traders like me that see a lid on the share price, with earnings in early February I like the duration of this butterfly as it allows for a bit of additional time after the earnings event for shares to settle in near the sweet spot.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.