One of the most interesting “smart money” trades we came across yesterday was with Starbucks Corporation (NASDAQ: SBUX).
If you’re new here, a “smart money” trade is a relatively large volume option trade most likely made by a pro trader. The idea is to analyze unusual options activity, identify an interesting “smart money” trade, and then make our best guess as to:
- Which direction the trader thinks the stock is headed
- How much they think it will rise (or fall), and
- In what time frame this will all happen.
If we like what we see after putting all these pieces together, we can mimic the “smart money” trade (on a smaller scale), and potentially ride alongside our pro trader to profits. With all this in mind…
A Pro Trader Just Bet $13,081,500 that SBUX Will Continue to Climb in the Next 7 Months
On Monday, May 23, 2022, a pro trader seems to have bought 45,900 of the December 16, 2022, $85 call options on SBUX for $2.85 per contract. Her outlay was $13,081,500.
SBUX – Option Trade
The trade’s breakeven point is at $87.85, meaning that SBUX needs to rise to $87.85 for the call option trade to break even. This is a nearly 20% upside from the stock’s previous close of $73.42. And then for every $1 the stock rises above $87.85, our “smart money” trader will make $4.590,000!
On analyzing the daily chart of SBUX, the stock seems to be trading within a falling wedge pattern (marked as blue color lines) and poised for a breakout. The stock is also trading above a support area, which is marked as a pink color dotted line. All this makes it likely that our pro trader is bullish on SBUX.
SBUX – Daily Chart
This lends credence to our conclusion that the pro bought these call options, as opposed to selling them.
If you agree and would like to mimic this trade, here’s how:
Buy to open the December 16, 2022, $85 call options on SBUX for $2.85 per contract or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
Happy Trading!
— Trades of The Day Research Team
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