For a conservative approach, wait for shares to drop two days in a row and buy near the open of the third day. Another approach that I favor is to sell cash-secured put options. Selling put options will lower your overall risk and can place the odds in your favor.
Right now, I like the August $65 strike price puts as an option short candidate. I want to receive at least $1.98 for premium. That's above the current amount, but the market rarely rewards rushing into a position instead of waiting for an optimal entry.
The advantage of selling an August $65 put is that your overall risk is reduced to about $63.02 and below normal retracement swings. The timing is advantageous also. The next earnings report is a month away, allowing about half the time until expiration to decay. If Starbucks fails to continue higher and trades in a range near the current price, you still profit.
That's why I like selling put options instead of buying stock. You gain if shares move in your direction -- and if they just sit there. If the shares fall, you lose less than if you bought a comparable number of shares outright.I expect Starbucks to continue delivering profits one cup at a time. At the time of publication, Weinstein held no positions in stocks mentioned. Follow @RobertWeinstein This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV