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This morning, we’re recommending a bullish trade on Starbucks (NASDAQ:SBUX).
The S&P 500 has failed to continue moving higher this week, but it also hasn’t lost any ground. The level at around 2,885, which served as resistance when the index was forming the right shoulder of the “head-and-shoulders” bearish reversal pattern in mid-May, is still holding as support. This is a promising sign.
Traders don’t want to start selling and destroying value in the stock market. However, they are still a bit too nervous to try and send the S&P 500 up to new highs.
Of course, that doesn’t mean individual components of the S&P 500 can’t move up to new highs. SBUX is doing just that, and a put write is a good way to play the situation.
Lower Coffee Prices and Rising Sales
SBUX is benefiting from both falling coffee prices and rising sales. Arabica coffee futures have dropped more than 13% during the past year. At the same time, SBUX continues to draw more business loyalty from the coveted millennial and Gen Z demographics.
Most analysts also believe SBUX will continue growing in China, even with increasing competition from companies like Luckin Coffee (NASDAQ:LK).
Plus, SBUX is starting to attract the attention of more hedge funds. This could unlock an entirely new source of buying demand.
With all these fundamental advantages, SBUX continues to be a good target for bullish plays. In 2019, we have bought back all nine of the puts we sold on SBUX for a profit. We want to sell another for even more income.
Leaving Some Room to the Downside
If we turn to the daily chart below, we see SBUX jumped to a new intraday high yesterday after consolidating for the first two days of this week. Traders continue to flock to it for its consistently strong performance.
We’ve chosen the $79 strike price for our put write because we believe the former resistance level will hold up as a solid support level moving forward. We expect SBUX to continue fluctuating and consolidating during the next few weeks, so we want to give the trade a little room to the downside to maneuver.
To find out which SBUX puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.
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