Investors have been hooked on Starbucks this year. Shares of the coffee giant are up more than 20 percent, and one technical-minded trader thinks the stock has even more room to run.
"Starbucks is a strong stock in a strong industry group, which is restaurants, and strong sector, consumer discretionary," technical analyst Todd Gordon said Monday on CNBC's "Trading Nation." The consumer discretionary ETF XLY is up 6 percent this year, while the broader index is up roughly half that in the same period.
According to Gordon, Starbucks could be setting up for a major breakout. "Starbucks is in a clearly defined uptrend," said Gordon, founder of TradingAnalysis.com. He noted that Starbucks has moved to the lower end of its trend channel. But Gordon sees this as a positive. By his chart work, now that the pullback is "complete," investors can expect shares of Starbucks to go higher and test the upper end of this channel.
That would mean a move 7 percent higher, or around $54.37 per share, noted Gordon. That rally would put the stock at an all-time high.
So to make a play on the stock, Gordon turned to the options market. Specifically, he purchased the June 50/55 call spread for $1.38. This is a bullish strategy where you buy lower call and sell a higher strike call to offset the cost. In Gordon's case, this trade makes money if Starbucks' shares break above $51.38 by June expiration.
"Starbucks has all the moving parts to go higher," said Gordon.
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