Playing Starbucks Options Ahead of Earnings

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July 25 (Bloomberg) -- Bay Crest Partners' Anshul Agarwal breaks down the Options for Starbucks with Dominic Chu on Bloomberg Television's "Lunch Money." (Source: Bloomberg)

We are coming up on 56 minutes past the hour, so it means bloomberg is on the markets.

Let's check how markets are shaping up.

What we are seeing in terms of the overall stock market, green across the board.

Alright, not strong green but still the nasdaq is leading higher.

You have the s&p and the dow taking a peek at just above unchanged.

A little bit of a win.

We are off the session lows.

Some of the names we want to highlight include international paper, of over five percent.

The companies all the profit rise 90 three percent on strong volumes and higher margins.

The company came in with earnings at $.64 a share.

The street was estimating -- home depot feeling the pain of the homebuilders.

Companies like d.r. horton and pulte homes weighed down the homebuilder index.

Home depot also had to recall some portable fan heaters due to a possible fire hazard.

That brings us to today's options update.

We are focusing on another name in the headlines.


The java giant reports after the bell today.

How is the options market predicting the stock is going to move?

Joining us to help break it all down is -- from bay press partners.

It used to just be about coffee.

Now it is about all kinds of other products.

What is the fundamental case for why starbucks is such a stock to focus on?

The fundamental case for starbucks really revolves around earnings growth.

Earnings growth in eps, all coming from execution in china.

The mobile system to retain customers.

The use of social media to promote the brand.

Last but not least, the starbucks gift card am a which has been a huge success.

In fact, one of the most popular gift cards.

I will -- must say i received a starbucks gift card from an associate producer as a gift and starbucks does follow me on twitter, i know what you're talking about.

Tell me about what the options market is saying.

What are we seeing and how would you play starbucks going into the earnings report?

The stock has been trading higher in a very narrow channel, currently at the low end.

I like it.

The growth possibilities outweigh the risks.

From the options market, i like to play using a slow grind higher trade for which i would like to do the super 70-75 call spread -- when you say 70-75 call spread, buying the october seven recall and selling the 75 call to help play ford.

The net cost is about one dollar or $1.05. also selling the weekly, one day option that expires tomorrow for around $.30. it really breaks down the cost basis to around $.75. basically this trade you could put on for $.75. if there is a risk.

I am careful about the call you are selling, but one call option, 70 called it expires tomorrow.

What is the risk?

The risk is pretty obvious.

If the stock goes higher on an unexpected announcement -- i am not expecting that.

Company has been recently good in guiding to the street and really does not up putting up surprises.

Still, if you are extremely worried about that, you might decide not to sell the october -- the july call.

But you can also buy july 72 point five call instead.

Thank you.

Thanks so much.

That that does it for "on the markets." "bloomberg west" is coming up next.


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