Trading Starbucks Ahead of Earnings

Starbucks (SBUX) has been a powerhouse growth story over the last several years since the return of founder/CEO Howard Schultz.  Over the past 12 months the stock has gained roughly from $55 to $82, rewarding shareholders with a 49% return.  However, since hitting an all time high in November 2013 in the mid $82's, the stock has pulled back to $73.90.  Starbucks reports earnings this Thursday, and analysts believe that the company is facing touger competition than in past quarters.  The earnings report will weigh heavily on the direction of the stock towards the end of this week.

When you look at the charts, SBUX sliced right through the 50 DMA on 12/10/13, falling from $80 to $77.50 in one day.  In today's trading session it just broke below the 150 DMA which is current at $74.75.  The 200 DMA is at $71.44, and it remains to be see if that provides support for the stock to move higher.  

Considering the weakness in the stock, and the move below it's 50 and 150 DMA's, we are buying the March $70 Puts for $1.42.  These options have 59 days until expiration, and will gain in value if SBUX continues to move lower.  If they report a positive earnings report this week and the stock moves higher, we will lose on this trade and potentially get out that day.  However, if the stock stays flat this week, then we will hold this position as long as the stock progresses in its current trend downward.  Our target time to exit this trade is before the end of February.