One Put, One Call Option To Know About for Starbucks

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is Starbucks Corp. ( SBUX). So this week we highlight one interesting put contract, and one interesting call contract, from the January 2016 expiration for SBUX. The put contract our YieldBoost algorithm identified as particularly interesting, is at the $62.50 strike, which has a bid at the time of this writing of $4.00. Collecting that bid as the premium represents a 6.4% return against the $62.50 commitment, or a 4% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

START SLIDESHOW:
Top YieldBoost SBUX Puts »

Selling a put does not give an investor access to SBUX's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless Starbucks Corp. sees its shares decline 15.4% and the contract is exercised (resulting in a cost basis of $58.50 per share before broker commissions, subtracting the $4.00 from $62.50), the only upside to the put seller is from collecting that premium for the 4% annualized rate of return.

Worth considering, is that the annualized 4% figure actually exceeds the 1.4% annualized dividend paid by Starbucks Corp. by 2.6%, based on the current share price of $73.89. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to fall 15.36% to reach the $62.50 strike price.

If you liked this article you might like

Ray Dalio Also Thinks AI Will Be a Killer Just Like Tesla's Elon Musk Does

Toys 'R' Us Bankruptcy Filing a Reminder That Amazon Is Crushing Everyone

Stocks Dad Would Have Loved, And Why He Was Right

Amazon, Google and Other U.S. Tech Giants Face a Battle Over Taxes With Europe

Stock Observations; Reviewing Equities: Doug Kass' Views