EOT Trade Alert – July 8, 2010

Corey Williams | July 8, 2010

July 8, 2010

Trade Alert:

Buy SBUX October $25.00 Calls at $1.70 or better

Company Background:

Starbucks (SBUX) is the original espresso style coffee retailer. You probably drive by at least one of their stores every day. They sell and distribute specialty coffee and they’ve expanded their business to include wholesale and trademark licensing.

Short-Term Catalyst:

Starbucks is once again a great growth story. They’ve regained their mojo from the late ’90s and early 2000s. But this time their growth plan is better.

They’re controlling costs and driving growth by expanding their product offerings. They’ve positioned themselves to sustain profitable growth. They’re not going to fall into the same trap they did before and sacrifice efficiency for the sake of driving growth at any cost.

Last quarter alone, same store sales grew by 7% while operating margins grew. These factors led to impressive earnings growth the last few quarters.

U.S. retail stores are the driving force behind their impressive earnings growth. And now the same lessons they learned in the U.S. are being applied to their international stores.

I’m expecting international stores to drive another impressive earnings report when quarterly earnings are released in a few weeks.

On a technical basis, SBUX looks great…

It set a new 52-week high in June even though the broad market had been trending lower since April. Since then, SBUX has fallen back to support of the 200-day moving average.

Yesterday SBUX bounced off of the support line and looks ready to run higher. Let’s grab these options now as SBUX recovers from oversold conditions and heads into their quarterly earnings.

Trade Details:

Underlying Stock Symbol:	SBUX
Current Bid-Ask Price:	$1.56 – $1.61
Option “Buy Up To” Price:	$1.70
Break-Even On Stock At Expiration:	$26.70
Maximum Risk Per Contract:	$170

Exit Strategy:

SBUX is trading at $24.67 per share. Resistance levels will be at $26.25 and again at $28. Remember, we want this stock to move higher. Support levels will be at $23 and $22.10. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

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