Starbucks: Using Options to Play After Capped Potential Winnings


  • Discretionary stocks have led the S&P 500 rally in recent weeks
  • Starbucks faces several headwinds, and the bar could be low enough Tuesday night when earnings hit the band, but resistance on the chart suggests caution
  • ORATS highlights a bearish bet traders can make

Welcome to the ORATS Earnings Report, where we search for companies with upcoming earnings announcements, view historical earnings information, and find a potential options trade.

Consumer Discretionary (XLY) has been the best sector since the market bottomed on June 16th. However, not all stocks participated. Those with a global footprint, with particular exposure to China, have struggled to resist that country’s strict Covid policies. After strong numbers from McDonald’s (MCD) and a positive reaction from Yum China (YUMC) stocks, all eyes are now on Starbucks (SBUX) for the latest clues on the state of the US consumer and that of the world.

Discretionary tracks since the June 16 market low

According to Bank of America Global Research, Starbucks is the world’s largest coffee retailer, with more than 29,000 locations (with total units split roughly half company-owned and half licensed). The company sources and roasts high-quality whole bean coffees and sells them, as well as fresh and richly brewed coffees, Italian espressos, teas, cold-mix beverages and complementary foods. Starbucks has recently expanded beyond its core consumer products retail business by leveraging the strength of its brand equity.

Seattle-based $97 billion market cap Consumer Discretionary stock, listed on both the Nasdaq 100 (QQQ) and S&P 500 (SPY), has a P/E ratio close to 25.4 times earnings of last year, according to ORATS, which is 46.4% below the average of the last twelve observations of income.

Robust EPS growth through 2024 could justify a higher-than-market earnings multiple. BofA sees earnings rise more than 35% next year after a sharp decline in 2022. The stock returns 2.3%, according to The Wall Street Journal.

SBUX: Profits, Valuation, Dividends

Due to the expected decline in earnings this year, Starbucks’ forecast P/E ratio is high, nearly 25 times. It’s actually on par with other restaurants’ inventory.

Earnings multiples above the market in the restaurant industry

ORATS shows a consensus earnings estimate of $0.75 for Starbucks’ confirmed reporting date for Tuesday, August 2, AMC. That would be a whopping 26% drop in net income per share year over year. Rising labor costs and certainly Covid-related shutdowns in China are weighing on corporate earnings. Since the May quarterly report, there have been four analyst downgrades of the stock with just one upgrade. On the positive side, SBUX has beaten analyst estimates in seven of the last eight earnings reports, according to ORATS data.

Starbucks Earnings Date Options Color

Table of SBUX ORATs

The options market expects a 4.9% move in either direction. This decision has been violated in 4 of the last 12 wins.

Historical vs Actual Implicit Movements

Table of SBUX ORATs

Meanwhile, the post-earnings move was outside the implied range 4 times. In these cases, long overlaps were profitable. The rest of the profit moves likely generated profitable short overlaps.

The technical grip

SBUX recently broke above key resistance at $80 to climb near $85 at the end of last week. The next resistance comes into play around $93 – the late March high (and a former gap fill) before stocks plunged below $70 during the worst of China’s Covid lockdowns. This high range of $60 was important from late 2018 to mid-2020 (without the Covid Crash). Keep these price levels in mind around Tuesday night’s earnings announcement and stock price reaction.

SBUX resistance near $93 caps upside

Table of SBUX ORATs

The angle of options

Quantitative analysis from ORATS reveals that the top-ranked trade is a Long Put Calendar with strikes at 85, expiring Friday, September 9 and Friday, August 19, for a debit of $0.78. This is a play on the action indeed finding resistance in the low $90s and returning to the $85 strike.

Long term calendar game

Table of SBUX ORATs

By pulling the trade on the ORATS dashboard, we can see the theoretical values ​​in more detail. The distribution advantage, found by the expected value of the gain picture over the historical distribution of the stock, has a 26.3% advantage. The expected advantage, which is derived from historical volatility, has an advantage of 10.0%. Finally, the smoothed edge, which is calculated by plotting a curve of best fit through the monthly implied volatilities, has an edge of 1.3%. The advantage is relative to the average market price of the trade. Larger positive edges are a theoretical advantage for the trader. We can also look at the earnings chart.

The risk reward divides the maximum gain by the maximum loss. Here, 2.3:1 is the ratio of the maximum win of $187 to the maximum loss of -$80. There are two breakeven points for this Long Put schedule at $80.95 and $89.55.

Options evaluation

Table of SBUX ORATs

Over the past month, the stock price has risen 10.3%, while the 30-day implied volatility has risen 1.5%. The average slope of the trend lines is negative. The heat map on the right side of the chart is green where volatility and slope are undervalued, and red where they are overvalued. In this case, the implied volatility and short-term slope are neutral, while the long-term is slightly undervalued.

Monthly implied volatility slopes

Table of SBUX ORATs

The essential

Starbucks appears to be bouncing back after a dismal 52 weeks. Down 31% from this time in 2021, the stock recently broke above resistance and may look to continue the uptrend following its earnings report on Tuesday. But earnings can be capped at $93, leading to eventual retirement. ORATS finds that a long sell timing gap at the $85 strike using the (short) August and (long) September expiry is the optimal trade.

You can watch our full Starbucks revenue overview here. For any questions or issues with the item, please contact otto@orats.com. To subscribe to the dashboard, please visit https://orats.com/dashboard

Disclaimer: The opinions and ideas presented herein are for informational and educational purposes only and should not be construed as representing trading or investment advice tailored to your investment objectives. You should not rely solely on the contents herein and we strongly encourage you to discuss any transaction or investment with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction or investment strategy is suitable for any particular person. Trading and investing in options involves risk and is not suitable for all investors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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