Are you a Starbucks shareholder feeling the impact of the recent drop in their shares? Fear not, as there may be a strategy to salvage some return in the wake of this setback. Let’s dive into how a call spread options trade could potentially help you navigate through this rough patch.
Starbucks (SBUX) recently experienced a significant decline in its shares, trading nearly seven times the 20-day average equity volume. The coffee giant reported earnings for the quarter that fell short of estimates, leading to a 16% drop in its stock price. This was one of the worst trading days for Starbucks since its IPO in 1992.
The company cited economic challenges, especially in China where they faced intense price wars and a “choppy” recovery. With a year-on-year revenue decline of 1.8%, Starbucks is facing tough times ahead. But what can investors do to potentially boost their returns if SBUX recovers slightly without taking on significant additional risk?
One strategy to consider is implementing a 1×2 call spread overlay against your stock position. This involves buying 1 July 19 $75 call and selling 2 July 19 $80 calls. By doing so, you can create a modest boost to returns if the stock appreciates, while minimizing additional downside risk. This trade can be executed at a low or zero cost, providing an opportunity to benefit from a potential uptick in the stock price.
It’s important to note that this strategy is not without risks, and before making any financial decisions, investors should seek advice from their own financial or investment advisor. By utilizing a call spread options trade, Starbucks shareholders may have a way to navigate through the challenging market conditions and potentially enhance their returns. Explore more strategic investing techniques like this on Extreme Investor Network to stay ahead in the game.
