Starbucks, Ouch!
Well as you may know Starbucks (SBUX) is going to shut the doors on 150 stores and is forecasting weaker-than-expected sales. The stock has sold off today -9.07% during regular trading session. Is it a falling knife or a buy opportunity? I say it's a buy and here are my reason why.
Starbucks Corp is trading 18% down from its 52-week high and now significantly lower than its 100 day moving average. Over the last year SBUX has not stayed in oversold territory very long for any reason that it sold off and after it did reach oversold territory investors swooped in to gather it while it was cheap. Thirdly, the derivatives market is very bullish on this stock and not very far out on the calendar for their anticipated rebound either. What I'm seeing in the options is that call volume is far heavier than put volume, meaning bullish sentiment outweighs bearish sentiment. A short squeeze could make for a nice rebound and even if it didn't the stock is so depressed that as those bears cover their short positions to take profits the stock has to go back up at least to the $55 level on the modest thesis. Lastly, there are certain things you just don't bet against in the US securities market and in my opinion that's Apple, Facebook, McDonald's (gross!) and Starbucks.
The best trade as I see it is to buy the 27 Jul 51/55 call spread at $1.65 per share. This is a little over 3% of the underlying cost of the stock and defines your risk up front so you cannot lose more than $165 per contract purchased. A more bullish bet would be to buy the single call with a 51 strike of the same expiration which will cost you almost $100 more but give you infinite profit potential. Well folks you heard it from us! Now only time will tell.
We are emerald chasers...
