Friday, September 25, 2015

SBUX Analysis

The coffeehouse chain Starbucks Corp. (SBUX), headquartered in Seattle, Washington, closed above its 20-day price channel on Thursday, sending a bull signal with high historical odds of success, suggesting a directional trade.

SBUX next publishes earnings on Oct. 29.

[SBUX in Wikipedia]


I shall use the NOV series of options, which trades for the last time 56 days hence, on Nov. 20.


SBUX has completed four bull signals in the past year. Three were successful, on average each yielding 5.0% over 57 days. The unsuccessful bear signal lost 2.9% over 14 days. The success rate is 75%.


Click on chart to enlarge.
SBUX at 11:43 a.m. New York time, 90 days 2-hour bars
Implied volatility stands at 27.8%, which is 1.3 times the VIX, a measure of volatility of the S&P 500 index. SBUX’s volatility stands in the 46th percentile of its annual range.

With volatility at that level, I can move directly to a judgement.

Decision for My Account

Implied volatility on SBUX has dropped below my boundary for trades that rely on falling volatility for much of their profit. While adequately high in an absolute sense, implied volatility is in the 46th percentile of the year's range, low to high. My standard is 50th percentile or higher.

Also, with earnings coming up less than five weeks away, the tendency of volatility will be to rise, not fall -- the opposite of what I want for the strategy I use.

Bottom line: It makes more sense to wait until close to the earnings announcement before opening a position.

-- Tim Bovee, Portland, Oregon, Sept. 25, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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