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Volatility can play well into the hands of traders. The best part is that it works whether you are bullish or bearish. All you need is for stocks to move.
One stock Money Morning's options trading specialist, Tom Gentile, is following right now is ready for a quick move to the upside. Here's how you can play Starbucks Inc. (NASDAQ: SBUX) for profit potential.
When the market is a bit dicey, almost every financial advisor will recommend consumer staple stocks to help you ride out the bad times in the market.
Why? Because such items as soap, corn flakes, and toilet paper are always in demand. No matter what is going on in the economy, people will still buy these products. That flat screen or vacation can wait.
Restaurants and other outlets for prepared food are also cut back when times are rough. But Tom sees Starbucks as an exception.
People still love their coffee, and even the relatively expensive venti latte is still only a few dollars. It's a small luxury in good times and in bad, and if you've driven or walked by your local outlet, you will see it is still quite crowded.
The stock has also performed relatively well...
Why Starbucks Stock Is a Steal
Just take a look at how the stock has performed this year.
At the depths of the pandemic bear market, Starbucks stock was trading around $50 per share. It rallied up to the $70s, where it spent most of the summer. But now it has broken out to the upside and looks quite strong.
At a recent price of $90, it is just about back to its 52-week high. Tom thinks it will reach $100 in short order, too.
How does he know? Well, nothing in the market is guaranteed. But his proprietary Money Calendar shows the seasonal effect over the past 10 years. According to the calendar, 80% or more of all bullish trades on Starbucks were successful in the month of October.
That's a pretty good record.
Now, you could just buy the stock and wait for it to go up. But there are so many other ways to profit.
Tom's Starbucks Profit Plays
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Tom's favorite way to play is with at-the-money call options in advance of earning reports.
They combine the bullish tendency in the stock with the rise in volatility ahead of earnings. In this case, you want a call with a strike price at $90 and an expiration perhaps in late November.
Remember, you just want to ride the stock into earnings and clean up on the change in the options price.
A second way combines both worlds - owning the stock and boosting your return with options.
In this case, you want to buy the stock outright and then sell a call against it with a slightly higher strike price than the stock price. This is called covered call writing. Just be sure to sell options that expire near the earnings date.
You collect a premium for the option you sell. If the stock only goes up to the strike price of the option by expiration, you will have the options premium and still own the stock.
If it goes higher, you may have the stock called away from you. But you still keep the options premium and the profit you made on the stock.
In either case, this was only a short-term trade. You can decide if you want to sell the stock after the option expires, although Tom thinks Starbucks might even be good for a somewhat longer trade.
This Options Trading Strategy Delivers Instant Paydays - and More
Tom Gentile wants to show you how to use a certain options trading strategy that can help put money in your pocket fast.
Not only does this strategy let you collect an upfront payment right away... it can also help get you into stocks you want to own - and let you buy them at a major discount.
It's almost like getting paid to buy stocks.
Tom will walk you through this strategy step by step. When he's done, you could be on the path to building wealth faster than you ever thought possible.