Shares of coffee store chain
Starbucks (SUBX) are up 15 percent over the past year, bucking the market downtrend. However, one trader sees a pullback in the coming weeks.
That’s based on the March $102 puts. With 18 days until expiration, 4,092 contracts traded compared to a prior open interest of 164, for a 25-fold rise in volume. The buyer of the puts paid $1.67.
Shares recently traded around $103.50, so the stock would need to drop about $1.50 for the option to move in-the-money. That’s a reasonable move, even in the span of a few weeks. And that strike price is still well over Starbuck’s 52-week low of $68.39.
Besides the strong share performance, revenues rose 8 percent in a challenging year, and earnings grew by 5 percent. While not huge numbers, compared to many other companies and sectors facing a slowdown, Starbucks fared well.
Action to take: Shares are worth buying on a pullback, as shares are a bit richly valued here at 30 times earnings. A drop to $90 or so would also give investors a higher yield than the current 2 percent on shares.
For traders, shares have been trending down over the past few weeks, so the March puts play to the current short-term trend. Traders can likely nab mid-double-digit gains before expiration.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
