Event: Starbucks reports fiscal Q3 results tonight after the close. The options market is implying about a 4% one day move tomorrow, which is rich to the 4 qtr average of only 1.5%, and the 10 year average of about 3.5%.
With the stock at $57.50, the July 22nd weekly 57.50 straddle (the call premium + the put premium) is offered at $2.20, if you bought that, and thus the implied move, you would need a rally above $59.50 or a sell off below $55.30 to make money on tomorrow’s close.
What’s interesting about those break-even levels of the implied move is that they are very near some major technical support and resistance levels over the last year:
[caption width="600" id="attachment_65191" align="aligncenter"]
From Bloomberg[/caption]This is a tough trade set up in my view. Investors generally like to give a company like SBUX the benefit of the doubt given the premium product, consistent double digit earnings and sales growth and overseas growth opportunities. But another miss on Chinese comps could cause investors to re-rate the stock a bit, one reasons for the stock’s ytd under-performance to the broad market. If the stock were to breakdown, on volume below $55, them there is an airpocket below to $50 and below that there is little support till the long term uptrend in the low $40s. It’s NOT going there on this report, but the point of this chart is to show where stock finds support in the event of a sustained down-trun:
[caption width="600" id="attachment_65193" align="aligncenter"]
From Bloomberg[/caption]I’ll remind you while low $40s seems far fetched, a year ago SBUX was trading a bit higher than current levels and collapsed to the low $40s during the August 24th flash crash.