Starbuck Earnings Trade Ideas

• Posted by Greg Harmon
• on January 26th, 2012

Once again I gave the meal to the premium users earlier. Now here is some coffee for everyone.

Starbucks, $SBUX

Starbucks, $SBUX, is in a bull flag after a move higher from the year end consolidation between 45.30 and 46.90 and the break of resistance at 44.40. As is runs into earnings tonight it has a Relative Strength Index (RSI) that is bullish and trending higher, but with a slight pullback. The Moving Average Convergence Divergence (MACD) indicator has just crossed negative though. A mixed bag but biased to the upside. Resistance is found higher at 48.39 before it continues higher unabated. Support below the levels mentioned above is found at 42.90 and 40.72 followed by 39.30. The average reaction to earnings for the last 6 quarters has been a move of 2.4% or $1.15 based on toady’s price for a range of about 46.60 to 48.90. The at-the-money Straddles imply a bigger move of $3.05 by February Expiry for a range of 44.70 to 50.80. Volatility in the February options at about 30% is elevated compared with the historical at just over 20%. A couple of volatility plays and some directional ideas.

Trade Idea 1: Sell the February 47/48 Strangle for $2.60
A bet that it stays in the range of 44.40 to 50.60 by February expiry with a maximum profit between 47 and 48. If volatility falls it will also profit.

Trade Idea 2: Sell the February 44/50 Strangle for $1.00
A bet that it stays in the range of 43 to 51 by February expiry with a maximum profit between 44 and 50. Like #1 but more conservative. If volatility falls it will also profit.

Trade Idea 3: Buy the February 48/50 Call Spread for 70 cents
A bullish bet that it goes above 50 by February expiry, with a reward to risk ratio of 2.85:1.

Trade Idea 4: Sell the February 44 Put for 35 cents
A conservative bullish bet that it stays above 44 by February expiry.

Trade Idea 5: Buy the February 48/50 Call Spread Risk Reversal selling the 44 Put for 35 cents
A bullish bet that it goes above 50 by February expiry, with leverage and improved reward to risk ratio of giving a 5.7:1.

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