SBUX received an upgrade and price target increase from Wedbush on Friday. The analyst believes the coffee purveyor will exceed its 2021 earnings-per-share range as it better adapts to the pandemic environment with lower drive-thru wait times. Moreover, the company is positioning for a post-COVID world with an enhanced menu that should leverage its strength in China and the U.S.
Despite the endorsement, the stock dropped more than 1% to log its third straight losing day after hitting an all-time high on Tuesday. But the intermediate-term pattern shows a series of higher highs and lows for the past three months. If this pattern holds, the current decline should find a bottom in the 104-105 area, which is also the site of the 50-day moving average.
If you agree that SBUX’s stairstep uptrend will continue, consider the following trade that relies on the stock remaining above $105 through expiration in four weeks.
Buy to Open SBUX 16Apr21 100 Put (SBUX210416P100)
Sell to Open SBUX 16Apr21 105 Put (SBUX210416P105) for a credit of $1.35 (selling a vertical)
This credit is $0.02 less than the mid-point of the option spread when SBUX was trading at $106.34. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will be only $1.30 per spread. Each spread would then yield $133.70. This reduces your buying power by $500 and makes your investment $366.30 ($500 – $133.70). If SBUX closes above $105 on April 16, both options will expire worthless, and your return on the spread would be 37% ($133.70 / $366.30).
As with all investments, you should only make option trades with money that you can truly afford to lose.