Starbucks Corp. Confirms 'Buy' Signal

Oct. 28th, 2020 Starbucks Corp. Confirms 'Buy' Signal Dear Reader, Yesterday, we looked at a Daily Price chart of JD.com, Inc. noting the stock's 50-Day EMA is above the 100-Day EMA. For today's Trade of the Day we will be looking at an On Balance Volume chart for Starbucks, Corp. stock symbol: SBUX. Before breaking down SBUX's OBV chart let's first review which products and services are offered by the company. Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in three segments: Americas; International; and Channel Development. Its stores offer coffee and tea beverages, roasted whole bean and ground coffees, single-serve and ready-to-drink beverages, and iced tea; and various food products, such as pastries, breakfast sandwiches, and lunch items. Confirming a Price Uptrend with OBV The SBUX daily price chart below shows that SBUX is in a price uptrend as the current price is above the price SBUX traded at four months ago (circled). The On Balance Volume chart is below the daily chart. On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line. On Balance Volume Indicator ● When Close is Up, Volume is Added ● When Close is Down, Volume is Subtracted ● A Cumulative Total of Additions and Subtractions form the OBV Line Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. We can see from the OBV chart below that the On Balance Volume line for SBUX is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability. The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price up trend.

Confirmed 'Buy' Signal for SBUX Since SBUX's OBV line is sloping up, the most likely future price movement for SBUX stock is up, making SBUX a good candidate for a stock or call option purchase. The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat SBUX price to a 12.5% increase. The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following SBUX option example, we used the 1% Rule to select the SBUX option strike price but out of fairness to our paid option service subscribers we don't list the strike price used in the profit/loss calculation. Our initial price target for SBUX stock is 100.41 per share.

Trade with Higher Accuracy When you use the 1% Rule to select a SBUX in-the-money option strike price, SBUX stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if SBUX stock is flat at 90.05 at option expiration, it will only result in a 9.4% loss for the SBUX option compared to a 100% loss for an at-the-money or out-of-the-money call option. Using the 1% Rule to select an option strike price will result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options. The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks. The prices and returns represented below were calculated based on the current stock and option pricing for SBUX on 10/27/2020 before commissions. When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price. For this specific call option, the calculator analysis below reveals if SBUX stock increases 5.0% at option expiration to 94.55 (circled), the call option would make 44.7% before commission. If SBUX stock increases 10.0% at option expiration to 99.06 (circled), the call option would make 98.7% before commission and outperform the stock return nearly 10 to 1. And if SBUX stock increases to our initial price target of 100.41 at option expiration the call option would make 115.0% before commission. The leverage provided by call options allows you to maximize potential returns on bullish stocks. The Hughes Optioneering Team is here to help you identify winning trades just like this one

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade. Chuck's Weekly Option Alert Trading Service Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes? As a Trade of the Day subscriber, Chuck is offering you a special discount on his Weekly Option Alert Trading Service. Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing! Wishing You the Best in Investing Success,

Chuck Hughes Editor, Trade of the Day

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