Shares of coffee shop chain Starbucks (SBUX) are trading near a 52-week low. One trader sees the possibility for a further significant drop ahead in the coming months.
That’s based on the December $50 puts. With 183 days until expiration, 3,948 contracts traded compared to a prior open interest of 103, for a 38-fold rise in volume on the contract. The buyer of the puts paid $1.54 to make a further downside bet on shares.
Shares last traded around $72, so they would need to slide $22, or nearly 30 percent, for the option to move in-the-money. Shares have traded as high as $126 in the past year, so such a move is just possible.
While the stock has been declining, earnings have slightly grown over the past year and revenue is up 14 percent. The company has recently had a change of CEO, who has a prior history of turning the company around.
Action to take: Shares would be an attractive buy under $70, and investors should wait for such a level before buying. The company has a strong brand, and at current prices pays a 2.7 percent dividend, just above its historical average.
For traders, the puts are a low-priced way to hedge against a further market decline in the coming months. A possible mid-double-digit move is likely, so traders may want to consider the option as a way to trade today’s bear market.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.