DGI Adventure 07-14-16 Sold Cash Secured Put – Starbucks Corporation (SBUX) – $53.50 strike – Aug 12 Expiration


This trade was actually executed yesterday 07/13/16.

This post won’t follow the core philosophies article on my investment thesis process because I already went through that process last month, when I first sold a put on SBUX. There are no significant changes to the investment thesis.

I’m simply recording the details of the trade. The Dividend Income Tracker and Portfolio have been updated accordingly.

The cash at risk essentially replaces (+/- a couple hundred bucks) what was reserved to cover the ABBV trade that expired last week. I chose not to rewrite that option because the share price has drifted up quite a bit (and there hasn’t been any volatility in ABBV shares).

Technically the last SBUX trade doesn’t expire until tomorrow, so I have double exposure to SBUX for a few days. It would take a massive price drop for that option to get assigned. Considering those contracts currently cost $0.01/share, the market doesn’t seem to be anticipating an issue, and neither do I.

Dividend Cycle

Starbucks is still a dividend challenger. I still expect SBUX to go ex-dividend in the first week of August, and the payout is still likely to be $0.20/share for the fourth time this year. This trade will likely expire after the ex-dividend date. 

It will be close. I tried to get strikes with an Aug 5th expiration, but they didn’t offer enough yield/downside.

Oh well. The premium received is the equivalent of 3 quarters worth of dividend payments.

Investment

SPL (Strike Price Logic)

This strike price is $1.00 higher than the the previous trade. Of course, the market price is about $1.00 higher as well, so for all intents and purposes this is just a rewrite of that option at a slightly higher strike. I like anything below the $55 – $56 range.

Shares were down pretty sharply in early trading and then just kind of stayed there, with continued downward pressure as the day wore on. That’s usually a pretty good environment to sell puts, and sure enough this opportunity popped up.

No one in the media brought it up explicitly, but I have to think the reason for the pressure was related to headlines about the company raising wages and prices

At the end of the day, it was announced that they took a stake in a fancy pants Italian bakery. It remains to be seen what that will do to shares today, but so far the after hour robots are not too interested.

I am curious to see what happens on July 21st, when the company reports earnings. I have a feeling there could be a sharp move in the stock price one way or another (the last few times shares have dropped on earnings). It remains to be seen if I should have waited to sell this put or not.

As it was, the opportunity was there so I took it.

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