Wednesday, March 9, 2011

Trade of the Day: Starbucks SBUX Put 1x2

On a relatively nice day for the stock, a trader places a bearish bet on the coffee giant that could pay off huge, while only risking 2 cents.

Courtesy: LivevolPro

Pros risk a small amount, use IV to their advantage, and stand to benefit in a major way if the trade works. The trade below is clearly a pro trade that could generate almost $800k in max profits. Take a look at how this trade is made after the (coffee) break.

This trade was spotted using the amazing software from the folks at

The Trade:

Buy 2k SBUX Oct $33 Put at $2.76 (30.9 IV)

Sell 4k SBUX Oct $29 Put at $1.37 (33.3 IV)

Net: 2c debit

This will likely expire around the time SBUX reports earnings, based on prior earnings. Clearly, we don't know exactly when earnings will be just yet. Both strikes trade against minimal open interest.

Courtesy: LivevolPro

Notice the October skew does offer one of the more attractive opportunities to play this trade with a longer term time horizon.

Courtesy: LivevolPro
As the stock price has been consolidating, the IV30 has been dropping.

Courtesy: LivevolPro

A breach of $33  would seemingly run into serious support around the $32 level. The $29 level approximates an open gap from October of 2010.


Finally, for a little something different I have added a look at the pivot points for SBUX as of today's close. Notice how on the monthly pivots $33 is the approximate pivot point and $29 is approximately support 3. These are key technical levels that pro traders have an eye on.

Now with all that said, I'm not into the new Trenta coffee sizing. Perhaps I will take a shot at the downside too ;)

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

No comments:

Post a Comment