This trade is 43 deltas negative and can be done for a credit of 9.01. Best case profit of 901 is achieved below the stake of the sold call of 72.5 and the worst case loss is a loss of 349 per contract above the strike of the bought call, 85. There is technical support at 75 -- this is why the written call strike is below 75.
SBUX has a whopping high PE of 30; during the trade war debacle this is outrageous. Lots of growth in SBUX has come from store growth in China. In Q1 it opened 3,700 stores, and can now be found in 10 new cities — totaling 158 Chinese cities. As more money is being poured into Chinese expansion, however, competition is growing. Luckin’ is expanding throughout China; coffees at Luckin’ cost 30 percent less than those from the American competition.
Also, if there is a macroeconomic downturn, people will cut their expenses on luxury goods, like $8 cups of coffee. This is a fundamental issue SBUX will have to face. August expiry follows SBUX's earnings report which will begin to indicate the suffering from the consequences of the trade war.
on a tear since this. im assuming you closed this trade? Or you still feel confident it will fall that far within a month
LaurenTrading
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@nfisch23, Yep, the recent good G20 and strong consumer sentiment have really contradicted the fundamental analysis used to take a bearish stance. We've looked into rolling, but can't do it for a credit, so paying to roll doesn't make sense. At that point, it would make more sense to just reset the strikes. However, it is important to consider the risk/reward characteristics of our current position created by longing 5 85 calls and shorting 5 72.5 calls: we've already incurred a loss of 1279.10 on the position, the worst case scenario (above 85) is that there is a loss of 1765. With a downmove, we could still make up to 4485. We are holding this right now, and will look to adjust about two weeks from expiry, if the credit that can be received from rolling it out a month is near twice what we orginially received (9.01/contract).
In33muney
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How do you not get assigned?
nfisch23
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@In33muney, close out the spread before expiration(buy it back). or youll just get assigned the $72.5 calls ($72,500 paid to you) then you'll have to exercise the $85 calls and buy 100 shares for $85,000......loss of $12,500 roughly( not factoring in premium paid for call and premium received from call)
In33muney
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@nfisch23, I see, just have to check the ex-div date. I've been assigned before and if you don't have the money directly to buy the stock you have to sell it for a loss or gain and then close out the other leg of your option. This is a pretty good risk reward.
nfisch23
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@nfisch23, threw some extras 0's in there lol. $7250....$8500......$1250