Starbucks has pulled back from multi-month highs in recent weeks, but at least one large trader is betting on a rebound.
Our monitoring program shows that about 5,000 February 60 calls were sold mostly for $0.49 to $0.51 below open interest of 17,882 contracts while 15,000 February 57.50 calls were bought mostly for $1.21 to $1.33 against open interest of 5,301 contracts. The trader could either be rolling the February 60s to the lower strike, as their volume is below open interest, or opening a new vertical spread. Either strategy is bullish.
Long calls lock in the price where investors can buy stock, allowing them to profit from a rally with limited capital at risk. Their cheap cost can also generate significant leverage on a percentage basis if shares move in the right direction.
If this is a vertical spread the investor is looking for SBUX to rally above $57.50 by expiration. The sale of the higher-strike contracts reduces the cost of the long calls but limits potential gains, as the trader will be obligated to sell shares if they rise above $60. (See our Education section)
SBUX fell 0.05 percent to $56.32 yesterday but is up 4 percent in the last three months. Shares have dropped since reaching an eight-month high of $59.54 on Dec. 13. The coffee giant announced bullish results on Nov. 3 and is expected to report its next earnings numbers after the close on Jan. 26.
Overall option volume in SBUX was twice its daily average yesterday. Calls outnumbered puts by a bullish 7-to-1 ratio.
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