Trader sees a Starbucks bounce ahead of earnings

Despite the recent pullback, TradingAnalysis.com founder Todd Gordon is taking another shot at a Starbucks trade.

The coffee giant reports earnings on Oct. 30, and Gordon is looking at a bounce for the stock based on its chart. Gordon had previously put on another trade in Starbucks in August.

“We have obviously a nice uptrend here through the summer of 2018 into now the fall of 2019,” he said Tuesday on CNBC’s “Trading Nation.” “The first thing you’ll notice is that we are pulling back to uptrend support, the source for multiple touchpoints in Starbucks.”

Given that implied volatility, or the price of options, is elevated going into the company’s earnings, Gordon wants to sell a put spread.

He’s looking to sell the Nov. 1 weekly 85-strike put and pair that with the purchase of the Nov. 1 weekly 80-strike put. This would give Gordon a credit of $141 should Starbucks rally and close above $85 on Nov. 1 expiration.

Should Starbucks close below $80 on expiration, then Gordon could lose up to $359. But the trader says that loss is unlikely, given that the breakeven for the trade is at $83.60, and the stock was trading at $86 on Wednesday.

Shares of Starbucks are up 34% year to date.