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

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 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


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more