SBUX October 3rd Options Begin Trading

The article details two options strategies for Starbucks (SBUX) at its current $88.56 trading price: selling an out-of-the-money $80.00 strike put for $0.75, which offers a potential cost basis of $79.25 and a 7.96% annualized 'YieldBoost' if it expires worthless (79% probability); and selling an out-of-the-money $94.00 strike covered call for $1.48, which could yield a 7.81% total return if assigned by October 3rd, or a 14.19% annualized 'YieldBoost' if it expires worthless (67% probability). These strategies, leveraging implied volatilities of 42% for the put and 33% for the call, provide avenues for discounted equity entry or enhanced income generation for SBUX investors.

Analysis

The analysis presents two distinct options strategies for Starbucks (SBUX), currently trading at $88.56, catering to different investor objectives. The first strategy involves selling an out-of-the-money put with an $80.00 strike, which effectively offers a path to acquire shares at a cost basis of $79.25, a 10% discount to the current price. This strategy is supported by a high statistical probability (79%) of the option expiring worthless, in which case the investor would realize a 7.96% annualized return on the cash commitment. Notably, the put's implied volatility is an elevated 42%, significantly higher than the stock's trailing twelve-month historical volatility of 33%, suggesting the market is pricing in a greater degree of downside risk and making the premium relatively rich for sellers. The second strategy is a covered call for existing shareholders, involving selling a $94.00 strike call. This approach offers a potential 7.81% total return if the stock is called away by the October 3rd expiration or a 14.19% annualized yield boost from the premium if the option expires worthless, an event with a 67% probability. The call option's implied volatility of 33% is aligned with historical levels, indicating a more standard market expectation for upside movement.

Key Decisions for Investors

• Investors with a bullish outlook who wish to acquire SBUX at a lower price point could consider selling the $80 strike put, aiming to either purchase the stock at an effective cost of $79.25 or generate a 7.96% annualized yield on their secured cash.
• Current SBUX shareholders could evaluate selling the $94 strike covered call to generate income, potentially boosting returns by 14.19% annualized if the stock stays below the strike, but must be willing to cap their total return at 7.81% if the stock is called away.
• The notable discrepancy between the put's high implied volatility (42%) and the stock's historical volatility (33%) signals that selling put premium may be an attractive strategy, as options markets are pricing in a higher-than-normal probability of a price decline.