Two stocks hitting all-time highs heading into earning, and two semi-bearish trades. But that’s where the similarities end from last Friday’s Options Action.
First up was Starbucks. Our traders don’t doubt the company’s growth prospects. In fact, the desk was of the same view that the coffee giant is firing on all cylinders. Instead, the traders’ negative outlook was based on the charts, which according to Carter Worth of Oppenheimer, paint a bleak picture of a stock that has come a little too far, a little too fast. To capitalize on that view, Mike Khouw bought the February 48/44 put spread for $1.05, a trade that could be worth up to $2.95 is Starbucks closes below $44 by February expiration. Earnings are Thursday, but Options Action fans have already spoken: that put spread has traded over 2700 times as of this afternoon, and there are three hours left in trading. Mike’s trade and breakdown are below.
MIKE’S STARBUCKS OPTIONS TRADE
- BUY FEBRUARY 48-STRIKE PUT FOR $1.45
- SELL FEBRUARY 44-STRIKE PUT FOR $0.40
HOW MIKE’S STARBUCKS TRADE MAKES MONEY
- LOSSES ABOVE $46.95
- PROFITS BETWEEN $46.95 - $44.00
- PROFITS CAPPED AT $44.00
Our other trade centered around Apple as the tech giant heads into earnings on Tuesday. Options prices imply a 4% move for the event, but there appears to be little conviction on which direction. Prices for both puts and calls remain fairly even, which is unusual. Typically, puts tend to be more expensive than calls as investors look to pay-up for protection. To take at advantage of inflated call prices, riskreversal.com’s Dan Nathan suggested collaring Apple stock by selling the February 440-strike call for $6.80, and using that money to buy the February 400-strike put for $6.80, net-net, paying nothing for a package that protects Apple below $400, but caps any upside to $440. His trade and breakdown are below.
DAN’S APPLE OPTIONS TRADE
- SELL THE FEB 440-STRIKE CALL FOR $6.80
- BUY THE FEB $400-STRIKE PUT FOR $6.80
HOW DAN'S APPLE TRADE MAKES MONEY
- STOCK CALLED AWAY AT $440
- PROFITS BETWEEN $421 AND $440
- LOSSES BETWEEN $421-$400
- PROTECTED BELOW $400
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