Shares of coffeehouse chain Starbucks (SBUX) have lost more than one-third of their value in the past year. One trader sees the potential for a rally in shares in the second half of the year.
That’s based on the December $85 calls. With 205 days until expiration, 46,245 contracts traded compared to a prior open interest of 485, for a 95-fold surge in volume on the trade. The buyer of the calls paid $3.06 to get into the trade.
Shares recently traded around $73, so they would need to rise about $12, or over 16 percent, for the option to move in-the-money. That would also still leave shares well off their 52-week high of $126.
While the stock has seen its share price slide, revenue is up nearly 15 percent in the past year and earnings are up by 3 percent. But shares are still on the pricey side at about 20 times forward earnings.
Action to take: As a leading brand, shares will likely trade at a higher premium when markets head higher. At today’s prices, shares yield about 2.7 percent, and the company has a history of dividend growth.
For traders, the December calls are a reasonable bet based on a likely market recovery in the months ahead. The calls are inexpensive enough to potentially deliver high-double to low-triple-digit returns.
Disclosure: The author of this article has a position in the company mentioned here, but may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.