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You Can Never Have Too Much Starbucks Premium

After its pullback, premiums jumped

At the end of July, we recommended selling a put write on Starbucks (NASDAQ:SBUX), and in the Strategic Trader portfolio, we exited that position once SBUX hit resistance at $80.

That turned out to be a good move, and now that the stock has dropped back down, we think this is the right time to jump back in with a new short put.

Yesterday’s unemployment claims data is got a lot of press because of the surprising number of new claims — over 1 million people filed for unemployment again this week — but market volatility remained relatively flat despite the negative news.

The unemployment claims numbers are very “noisy” from week to week, so a surprisingly high report isn’t a perfect representation of reality. Before the pandemic, investors were much less interested in the week-to-week claims.

We still think there is plenty of bullishness left in the market, and rather than recommend a position on a new stock, we want to revisit SBUX.  We will look for additional data to either confirm or dispute the blip in new unemployment claims before making any big changes to our strategy.

Sticking with SBUX After Earnings

Much of our original analysis of SBUX stands. The company beat revenue estimates by $80 million and non-GAAP earnings estimates by $0.15 per share — coming in at $4.22 billion and -$0.46 per share, respectively.

As we’ve explained before, analysts lowered earnings expectations enough to make SBUX’s loss seem positive.

Analysts expected SBUX to post non-GAAP earnings of -$0.61 per share, and investors had been positioning themselves accordingly. Only losing $0.46 per share doesn’t seem so bad. That’s a much easier hole to climb out of in the future.

The company’s slight pullback in the short term isn’t too much of a concern, but because we’re still dealing with the lingering possibility of a second COVID-19 outbreak, we should make sure to watch any short-put position on SBUX closely.

Where is SBUX’s Support?

In the chart below, you can see that SBUX struggled after crossing above its 200-day moving average. For now, we expect support at $75 to hold if there is any short-term volatility in the market. The stock’s 50-day moving average also lines up with that level, making it an even more attractive target for a strike price.

Daily Chart of Starbucks Corporation (SBUX) — Chart Source: TradingView

Additionally, we think trendline support near $76 per share will hold in the short term. Traders may have another opportunity to take some early profits again if the stock market can avoid any significant drawdowns for the rest of the month.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of, as well as the co-editors of Strategic Trader.

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