To help celebrate the 20th anniversary of Starbucks’ signature frozen drink, the Frappuccino, Starbucks will be offering a birthday cake flavored Frappuccino for a limited period of time. Of course the drink will be delicious but is Starbucks stock looking appetizing to investors at this level?

Starbucks Corporation (SBUX) operates in 65 countries around the world and is one of the largest roasters and retailers of coffee and other food and beverage items. The company’s stock is currently trading around $94.80 in a 52 week range of $67.93-$99.20. SBUX has been performing very well this year with shares rallying more than 15% year to date. Despite red hot growth over the past 5 years analysts are still expecting SBUX earnings and revenues to grow over 15% this year. The addition of new food and beverage offerings at certain stores aims to spur new growth for the company.

The stock recently touched new 52 week highs on the announcement the stock will undergo a 2-1 split. The move is meant to increase shareholder value and liquidity ahead of what CEO Howard Schultz expects to be the next leg higher in SBUX earnings growth. With increasing revenues from food and other beverage sales and growth in earnings expected how can a trader take a long term position in SBUX using options?

With the options market implying a $8.80 move in the stock through July expiration we can calculate an upside target around $103.60.

Potential Trade: Buying the SBUX Jul 87.5 Calls for $9.00
Risk: $900 per 1 lot
Reward: Unlimited
Breakeven: $96.50

These calls have a 75 delta meaning they will behave just like a stock position but have a much more defined downside risk.

Kraft Foods Group, Inc (KRFT) stock is trading around $81.80 this morning higher by over 33% on the news that the company will merge with global food manufacturer H. J. Heinz Company (HNZ). The merger has sent KRFT stock soaring but how could a trader have caught this move before the announcement?

One way to see announcements like this telegraphed in the options market is to watch for unusual options activity. Earlier this month, on March 10th to be exact, a trader put on a very large bullish options position in KRFT. On March 10th a trader bought 10,000 KRFT Jun 67.5 calls for $0.70. This trade hit the tape early in the morning and required this trader to lay out $700,000 in capital. At the highs today this position was worth nearly $16.1 million. IF a trader was able to spot this unusual options activity they would have been able to get in on the move ahead of the announcement.

Trade: Trader bought 10,000 KRFT Jun 67.5 calls for $0.70
Risk: $70 per 1 lot
Reward: Unlimited
Breakeven: $70.20

If a trader would have bought a 50 lot of these calls for $0.70 they would have profited nearly $78,000 at the highs.

What Does Google Inc’s (GOOGL) New CFO Mean for the Stock?
Google Inc. is a global tech company with operations in nearly every part of the tech space. The company’s stock is currently trading around $57900 in a 52 week range of $490.91-$608.91. The stock has been doing relatively well this year with shares rallying 9.3% year to date. Over the past 12 months however, the stock hasn’t done much. Shares of GOOGL are only higher by 0.08% over the past 12 months and investors are looking for a catalyst in the name.

One catalyst may be the recent announcement that Ruth Porat, ex Morgan Stanley CFO, will be taking the place of retiring Google CFO Patrick Pichette. Porat is widely regarded as one of the most powerful women on Wall St. and will be taking the spot at Google later this week.
So how can a trader take advantage of a potential management shakeup catalyst using options? If a trader was looking for a longer term strategy they may choose to employ a strategy like this.

Potential Trade: This is a stock replacement strategy that allows a trader to take a long term bet in GOOGL without tying up the capital it would take to buy the stock.

Trade: Buying the GOOGL Jan 2016 535 Calls for $75.00
Risk: $7500 per 1 lot
Reward: Unlimited
Breakeven: $610.00

What is the short term fate of Russian markets? Economic sanctions have sent the country into dire economic straights but it seems that the worst is not over yet. The falling price of oil also puts pressure on the Russian economy and that pressure is reflected in the weakness of the Ruble and a collapse in Russian related equities. One way a trader can take advantage of further potential downside in Russian markets is with the Market Vectors Russia ETF (RSX).

The Market Vectors Russia ETF (RSX) is a fund that tries to emulate the yields and price performance of the Market Vectors Russia Index. The fund is highly linked to the Russian Index and invests 80% of its assets in securities that comprise the index, which is made entirely of Russian companies. Currently, RSX is up about 4% on the day and trading at $16.96. A full $4 off its 52-week low of $12.50, which was hit on December 1st of last year, while it’s still a ways a way from its 52-week high of $27.46 from July of 2014. The fund has total net assets of $1.88 billion and a year to date return of 21.80%. Despite this recent strength in the RSX weakness in oil and the possibility of more sanctions could provide traders an opportunity to short this bounce. RSX is still lower by over 28% over the past 6 months.

Potential Trade Setup: With the options market implying a move of around $2.70 by June expiration a trader can look for an options trade with a downside target around $15.30.

Trade: Buying the RSX Jun 16-15 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot
Breakeven: $15.70

This trade offers better than 2-1 on a traders money and gives a trader great short side exposure with a clearly defined level of risk.

Nike, Inc. (NKE) is one of the most recognizable brands on the planet. From Michael Jordan’s famed “Air Jordans” to the University of Oregon’s football jerseys (Nike founder Phil Knight is an alumnus), Nike is one of a few companies at the pinnacle of the athletic apparel sector of the economy. The company, which was founded in 1964 and is headquartered in Oregon, employs over 55,000 people and has a market cap of nearly $85 billion. Since hitting a 52-week low of $70.60 last April, NKE was unstoppable as it pushed itself to a 52-week high of $99.76 in early December. Since that time, NKE has held strong and is currently trading at $97.90, just $2 off that 52-week high. The company is expected to report Q3 earnings after the close today and according to TD Ameritrade Chief Stategist JJ Kinahan, there has been a lot of put selling at the March 95 strike price, indicating that investors are bullish on the stock ahead of earnings (Yahoo Finance). The stock has rallied on 5 of the last 8 earnings reports with an average move of about 5%. The chart is decidedly bullish and if it’s bullish earnings history holds true again, we could be looking at a new 52-week high in the athletic apparel giant.

My Trade: I am buying the NKE Mar 101-103 Call Spreads for $0.45
Risk: $45 1 lot
Reward: $155 per 1 lot
Breakeven: $101.45

PowerShares DB US Dollar Bullish ETF (UUP) is a fund that follows the price and yield performance of the Deutsche Bank Long US Dollar Futures Index. The index is made strictly of long futures contracts, which attempt to replicate being long the US Dollar against six of the world’s major currencies; the Euro, British Pound, Canadian Dollar, Swedish Krona, Japanese Yen, and Swiss Franc. The fund opened at $26.30 this morning and has seen a slight price decline throughout the A.M. period of $.06 (.25%). UUP has traded in a relatively tight range over the past 52 weeks, staying between $21.14 and $26.50 with the ETF in a decidedly bullish trend since July of last year and hitting the 52- week high this past week.

Despite the extremely bullish price action in the US dollar there are traders who are putting on very large bearish bets in UUP ahead of the Fed meeting and announcement today. This trader may believe that the Fed announcement will send the dollar lower or they may just believe it is overbought. Yesterday a trader bought 250,000 UUP Jun 25 puts for $0.12 as a single block order. This is a $3 million bet on downside in the UUP through Jun expiration. The timing of this bet is important to note as markets are expecting the Fed to signal today when a raise in rates may be coming. Whether this is a speculative bet or a hedge this order is worth note. UUP is trading slightly lower this morning but at the money implied volatility in the name is touching new 52 week highs. This signals that traders may be expecting some wild moves in the UUP post Fed announcement.

Trade: A trader bought 250,000 UUP Jun 25 puts for $0.12
Risk: $12 per 1 lot
Breakeven: $24.88

Adobe Systems Incorporated (ADBE) is a software company that offers a range of products used by professionals in a number of industries. The company’s stock is currently trading around $79.20 in a 52 week range of $57.15-$80.30. The stock has been very strong this year with shares rallying 9% year to date. ADBE is expected to report their most recent quarterly earnings after the close today.

The stock has been strong on earnings day over the past 8 quarters. ADBE shares have rallied 6 of the past 8 quarters with an average move of 6.9%. Currently the options market is implying a move of around $4.15 by Friday’s close. This would imply an upside or downside move of around 5.2% by March expiration. ADBE is looking very strong on a chart as well with shares trading well above the Ichimoku cloud and value area for the month. With a strong historical bullish bias and a strong technical setup I will be looking to get long ADBE into earnings.

Potential Trade: Buying the ADBE Mar 82.5-85 Call Spreads for $0.50
Risk: $50 per 1 lot
Reward: $200 per 1 lot
Breakeven: $83.00

Since the historical movement is higher than the move implied this time I am willing to get a little more aggressive with my upside target.

The first two weeks of March have given us a rather nasty bout of whiplash. We check futures before bed and theyʼre down. We wake up at 5 and theyʼre up. By the open…

We find some comfort in an extra shot of espresso, but the lack of trend is taking its toll on our sleep. The Dow Jones Industrial Average (DJIA) has closed up or down by triple digits on seven of the last ten trading days. Notably, four of these moves exceeded 250 points.

Despite the gyrations, the CBOE Volatility Index (VIX) is still only 16.6, well below both Januaryʼs rise to 22 and last Octoberʼs spike above 26. In other words, the Chicago based traders who make markets in the S&P 500 Index options, which in turn determine the level of implied volatility, are far less stressed than we are! The trading community is effectively telegraphing a view that the broad market will continue to yo-yo up and down rather than break out in one decisive direction. We may have whiplash, but they clearly do not.

Traders not only embrace volatility, they live for it. Volatility, or “vol” is their lifeblood. It provides opportunities to get in and out, presumably at a profit. We generally take a longer-term view, but we can still borrow a page from their playbook: Trade the range.

We are combing our portfolio for stocks which, like the broader market, are gyrating more than usual. We are looking to make opportunistic options trades, buying calls on down days and puts on up days (if the VIX were higher, we would sell puts on down days and sell calls on up days). Because we are buying options, we generally focus on slightly in-the-money strikes, thereby minimizing both time decay on our P&L and premium paid to the Chicago crowd.

Hereʼs what weʼre eyeing today as the DJIA falls 260 points. Happy trading.

1. BankAmerica April 15 calls at $1.12 stock at $16.00
2. Google April 535 calls at $22.00 stock at $545.00
3. News Corp 16 calls at $0.75 stock at $16.50

Urban Outfitters, Inc. (URBN) is a retailer that offers a variety of apparel and lifestyle products from number of different brands. The company operates over 500 stores in the U.S., Europe, and Canada. The company’s stock is currently trading around $39.07 in a 52 week range of $27.89-$40.67. The stock has been very strong this year with shares rallying over 11% year to date. The stock is also trading very well on a chart with shares trading well above the Ichimoku Cloud but inside of value for the month.

URBN is reporting earnings today after the market close. The stock has a relatively mixed performance record on earnings day. In the past 8 quarters the stock sold off 4 times and rallied 4 times with an average move of 4.6%. With stock at current levels the options market is implying a move of around $2.70 by March expiration. This implies that the stock could rally as high as $41.65 by option expiry. Even though the historical movement is mixed there has been some bullish options activity in URBN ahead of this release. We have seen several large blocks of calls bought in URBN. With the bullish orderflow and relatively bullish chart setup I will be looking for a long position in URBN into earnings.

Potential Trade: Buying the URBN Mar 41-12 Call Spreads for $0.25
Risk: $25 per 1 lot
Reward: Unlimited
Breakeven: $41.25