logo

Starbucks could break out to new highs, says trader. Here's how to play it

VIDEO3:3603:36
Trader sees a breakout for Starbucks

Investors are hot for Starbucks.

As the broader market has tumbled, shares of the coffee giant have soared 19 percent over the last three months, hovering near all-time highs and making it the best performing stock in the consumer discretionary sector in that period.

According to TradingAnalysis.com founder Todd Gordon, the stock is about to perk up even higher.

"Pretty much since the end of 2015 and 2016, we were very tightly contained within this range," he said Tuesday on CNBC's "Trading Nation." "Finally, the stock got on its horse here and broke out to new highs."

Gordon is referring to the breakout that Starbucks saw to its high in early November. While the stock has gone back into consolidation since then, Gordon says it is primed for another rally above the $70 level.

To play for a breakout using options, Gordon suggested buying the January 67.5-strike call and selling the January 72.5-strike call for $1.37 per options spread, or a total of $137. This is a bullish bet that Starbucks could rally another 9 percent from current levels over the course of the next month.

Starbucks closed just under $66 on Tuesday.

WATCH: How Starbucks has made long-term investors rich

VIDEO3:0203:02
How a long term stake in Starbucks coffee paid off