On March 6th we took a look at Starbucks (SBUX) after a bounce and failure at its downtrend. Here’s what we had to say at the time:
To my eye the stock was just rejected at the 3 month downtrend, and looks poised to test near term technical support at $54, which is also its post earnings low in early February
And here’s the bearish trade idea we detailed in the same post:
Owning May puts to play for a move to the downside is already cheap. But by selling March options to finance, it can be even cheaper:
SBUX ($56.75) Buy the March/May 55 put calendar for $1.00
- Sell 1 March 55 put at .20
- Buy 1 May 55 put for 1.20
With the stock now just below the 55 strike at 54.85, this trade idea is worth 1.45 (vs the 1.00 initially paid) with the short March 55 puts expiring tomorrow. That’s a decent profit and for those that were just looking for this pullback the entire trade can be closed for an almost 50% profit vs the original risk. For those looking to continue the bearish stance, it’s time to adjust.
The bearish profile can remain while taking off almost all the risk.
ACTION – ROLL
Buy to close the SBUX (54.85) March 55 puts for .25
Sell to open the May 52.5 puts at .75
New Position – SBUX (54.85) Long the May 55/52.5 put spread for .50 (currently worth .95 mark to market)
New Breakevens on May expiration: This roll now has a breakeven at 54.50 and risks only .50 until May expiration. It can make up to 2.00 if the stock is below 54.50 with a max gain of 2.00 at or below 52.50.