Starbucks Corporation (NASDAQ:SBUX) is still not the hottest flavor of the day with Wall Street, but that’s okay by this strategist. As others continue to pooh-pooh Starbucks stock, a nice blend of reduced and limited risk with sweet profit potential is growing nicely with a moderately bullish spread in SBUX. Let me explain.
In recent weeks, investors have been slowly warming up to SBUX stock. For the two-week period, Starbucks shares are up 4%.
It’s not a lot, but it had been a downright chilly start to 2018 following Starbucks mixed results from the company’s January quarterly corporate confessional.
The report largely reinforced the bear narrative and solidified why momentum traders won’t be involved with SBUX stock anytime soon.
But as I’ve stated prior, the report also emphasized that trouble with one group of investors, is a far cry from inferring Starbucks as a company is a risky proposition.
And now, while I certainly wouldn’t say Starbucks stock is percolating, the price chart is warming up and aligning itself nicely with our forecast of higher prices, but the type worth placing a lid on using the SBUX options market.
Starbucks Stock Weekly Price Chart
Technically, the last couple weeks haven’t been an espresso shot for Starbucks stock investors. Nevertheless, shares have turned from being ice cold to more than keeping up with the Jones’.
Furthermore and since last writing about SBUX in late February, a belief a chilly-looking flag pattern wasn’t going to warm the cockles of Starbucks bears has proven spot-on.
Shares of SBUX continue to look attractive to this strategist. And now they have the benefit of having a modicum of chart support compared to our last article. The technical belief is Starbucks has reasserted enough strength on the price chart to suggest the third time will prove for bulls wanting fresh intermediate highs.
That being said, I’d still put a lid on our enthusiasm and position without fear of getting burned if SBUX spills lower.
Starbucks Stock Moderately Bullish Butterfly
Considering what’s been expressed above, a lid on Starbucks stock potential using a moderately bullish and very low-cost butterfly continues to be viewed favorably as the position. This type of limited-risk position holds minimal downside risk while offering a solid profit profile that’s in keeping with the expectation for limited gains in shares of SBUX.
Reviewing the SBUX options board and shares at $58.46, the May $57.50/$60/$62.50 call spread for up to 55 cents remains attractive despite having increased in price by 30% from 37 cents.
Minimal downside risk of around 1.0% keeps this spread trader in a strong position, financially and mentally, to buy SBUX shares at a much larger discount should the price chart actually prove bearish. Alternatively and equally nice, the trader can simply choose to walk away mostly unscathed if his or her opinion on shares is dampened.
Finally, and as noted last time, while this long butterfly does put a lid on our enthusiasm for Starbucks stock — or lose the small debit in full above $62.50 — that risk still looks both appropriate and likely more in our head than on the SBUX price chart near-term.
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.
