$SBUX calls spike higher overnight

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It took just 24 hours for bullish option traders to turn enormous gains in Starbucks, which has been range-bound for months but perked up this week.

Just yesterday, Investitute’s tracking systems found that 4,900 Weekly $55 calls that expired this afternoon were purchased for $0.04 to $0.11 with shares at $54.66. These were clearly new positions, as open interest in the strike was only 931 contracts before the activity appeared.

Those calls traded for $0.42 today, more than 10 times their original purchase price. The stock was up 1.4 percent at the same time, illustrating how quickly options can far outpace gains in their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

SBUX was up 1.04 percent today to close at $55.17. The coffee chain officially closed its online store this week to concentrate on mobile apps and its brick-and-mortar outlets. In addition, Morgan Stanley released a research note saying that the threat from smaller, artisan coffee businesses has been vastly overplayed in the media.

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Mike Yamamoto | Investitute

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