At Cabot Options Trader and Cabot Options Trader Pro, I do my best to keep our portfolio fairly diversified; we are unlikely to own seven super growth stocks or eight safe utility stocks. Instead, I have a mix of growth stocks, a couple more conservative holdings, a bank stock and some emerging market exposure. This keeps us out of trouble should the intense sector rotation of the past several years turn the selling pressure on in any one sector.
Because of this diversification, my Cabot Options Trader subscribers just closed out a 340% winner in a stock that I never anticipated would be a home run: Starbucks (SBUX). My SBUX options trade has been a delightful surprise.
In late January Starbucks reported a very strong earnings beat, and following that announcement traders aggressively bought upside calls looking for further gains in SBUX stock. And because we had a portfolio that had a couple growth stocks, but not a slow/steady consumer staple stock, I thought SBUX would be the perfect addition to the portfolio. Though, to be honest, because I thought of Starbucks stock as a sleepy/slow grinder, I was hoping best case to lock in a profit of 40%-50% on the position.
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Boy, am I happy to have been wrong! Here was the original SBUX options trade alert I sent to my subscribers:
My SBUX Options Trade Recommendation
Buy the Starbucks (SBUX) June 70 Calls (exp. 6/21/2019) for $3.60 or less.
Since Starbucks (SBUX) beat earnings last week I have picked up on a steady stream of call buyers looking for further gains for the stock. While the size of the trades has not been overwhelming, the extremely inexpensive price of calls has me intrigued in taking a cheap shot to the upside.
To execute this trade:
Buy to Open the SBUX June 70 Calls
The most I could lose on this trade is the premium paid, or $360 per call purchased.
I am not too worried about the political risk associated with the former CEO announcing a potential presidential bid. Instead what could potentially hurt this trade is if the market were to again unwind.
However, to pay $3.60 for five months of exposure to an earnings season winner, in a market that appears to be strengthening, is a great risk/reward.
Later that day I wrote a bit more to my readers about the position:
This afternoon we added Starbucks (SBUX) calls to the portfolio as the market action has strengthened in recent days. I chose SBUX for these reasons:
- The stock is an earnings season winner
- The calls we purchased were in my opinion very cheap
- I want to keep the portfolio balanced with a wide variety of sectors and exposure
- Option order flow has been steadily bullish in SBUX
Big Profits Can Come From Unexpected Stocks
And how has the trade worked out since we bought SBUX calls on January 31, when the stock was trading at 67?
SBUX is now trading at 84.5 and we sold our calls for $14.40, or a profit of over 340%. If you bought five calls you would have a profit of more than $5,500, and if you bought 10 calls you would have a profit of better than $11,000.
While I have several super growth positions in the Cabot Options Trader portfolio that I think could even exceed these SBUX profits, there are few things in options trading more exciting than watching a trade with “low” expectations turn into a home run.
If you want to be on board for my next home run trade recommendation, click here.
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