October 24th Options Now Available For Starbucks (SBUX)

Options analysis for Starbucks (SBUX) highlights two strategies for investors: selling a cash-secured put at the $78.00 strike and selling a covered call at the $95.00 strike. The $78.00 put, 11% out-of-the-money, offers a potential entry at a $77.28 cost basis if assigned, or a 6.74% annualized yield if it expires worthless with an 80% probability. For existing holders, the $95.00 covered call, 9% out-of-the-money, could generate a 10.17% total return if SBUX is called away by October 24th, or an 8.54% annualized yield if it expires worthless with a 71% probability. These strategies provide distinct avenues for optimizing SBUX exposure, whether seeking a discounted entry or enhancing income on current holdings, within defined risk parameters.

Analysis

The options market for Starbucks (SBUX) presents two distinct income-generating strategies based on current pricing and volatility metrics. For investors seeking to acquire the stock at a discount, selling the $78.00 strike put contract offers a potential entry at an effective cost basis of $77.28, an 11% discount to the current share price of $87.16. The high probability (80%) of this out-of-the-money put expiring worthless would result in a 6.74% annualized return on the cash commitment. Notably, this put's implied volatility of 42% is significantly higher than the stock's trailing twelve-month actual volatility of 33%, suggesting the premium is relatively rich for sellers. Conversely, for existing shareholders, a covered call strategy at the $95.00 strike yields a $1.02 premium. This could generate a total return of 10.17% if SBUX is called away by the October 24th expiration, or an 8.54% annualized yield if it expires worthless, an event with a 71% probability. The implied volatility for this call is 34%, which is closely aligned with the historical volatility, indicating its premium is more neutrally priced.

Key Decisions for Investors

• For investors bullish on SBUX but seeking a discounted entry, selling the $78.00 strike put offers an effective cost basis of $77.28, capitalizing on an elevated implied volatility of 42% which is well above the stock's 33% historical volatility.
• Current shareholders could consider writing the $95.00 covered call to generate an 8.54% annualized yield, but must accept capping a potential total return at 10.17% and forgoing any upside above the $95.00 strike price before the October expiration.
• Given the significant spread between the put's high implied volatility and the stock's historical volatility, the put-selling strategy appears particularly attractive for capturing an enhanced risk premium relative to the stock's recent price behavior.