Starbucks draws call spread at lows
Chris McKhann | firstname.lastname@example.org
SBUX is down 3 percent to trade at $45.49 after dipping to $45.38, its lowest price since early January. Shares hit an all-time high of $62 in mid-April but gapped down from above $52 at the end of last week after the company announced earnings.
The option volume in SBUX is already twice its daily average and dominated by a call diagonal spread, which uses strikes in different months. The trade involved 10,000 October 55 calls that went for $0.25 and the same number of September 52.50 calls for $0.28.
These are very tight bid/ask spreads, and while it first appeared that both sides of the trade were sold, it seems that the October calls were bought and the Septembers sold in a long call spread. The volume at both strikes was more than open interest.
The diagonal spread takes in a small credit, which will be kept if SBUX is anywhere below $52.50 at expiration. The maximum gain, however, would come with the stock around $55 at expiration as time decay eats away at the shorter-term options. The risk is if it moves significantly above that level. (See our Education section)