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.
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.
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.
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.
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.