Sink or Swim Quarter for SBUX

Sink or Swim Quarter for SBUX

The market got off to a good start this morning as the major indexes continue to work their way towards records highs and a three-session win streak. Geopolitical news has taken center stage for the second half of action as President Trump continues to roll out his ambitions plans for America. Perhaps a cancelled meeting by Mexico's President for next week about "The Wall" has sparked some nervousness and will remain an ongoing story.

Aside from the choppy action, earnings are still in focus and have been the real catalyst for the indexes breaking out to fresh highs this week. One stock that will sink or swim in after-hours trading will be Starbucks (SBUX, $58.47, down $0.23). Wall Street will be looking for a profit of $0.52 a share on revenue of $5.85 billion. The company has matched twice and topped estimates by a penny, twice, over the past four quarters.

While we have no doubt the company will perform the same feat this go around, we do believe their revenue numbers come in a tad light. The recent retirement announcement of CEO, Howard Schultz, certainly has to make current shareholders feel uneasy about the future success of Starbucks. Although these fears were quickly debunked as the new CEO was introduced, he certainly isn't Howard.

We wouldn't compare this story to Steve Jobs, Tim Cook, and Apple, but you get our drift. Given this backdrop, it is very tempting to take an earnings trade.

The SBUX February 57.50 puts (SBUX170217P00057500, $1.00, up $0.10) can be targeted by bearish traders looking for a pullback to double-nickels in the stock. These options would double from current levels if shares fall below $55.50 on the news, or trade below this level by mid-February.

The SBUX February 60 calls (SBUX170217C00060000, $0.70, down $0.05) can be targeted by bullish traders looking for a surge past $60 on a blowout quarter and raised guidance. The options would double, technically, if shares clear $61.40 by mid-February.

We are more bearish, than bullish, on StarChucks.

The Dow is up 22 points to 20,090 while the S&P 500 is off 2 points to 2,296. The Nasdaq is declining 3 points to 5,652 and the Russell 2000 is lower by 7 points to 1,375.