Starbuck’s (SBUX) implied volatility is moving amid active premium buying ahead of earnings. Recent trades include 1000 SBUX Feb 23 straddles on ISE, which appears to be a buyer as both the puts and calls hit at the ask — a total of $2.07 per straddle. Feb 24 calls, Feb 22 calls, Feb 25 calls, and Feb 22 puts are seeing a lot of today’s volume trading at the offer as well. Implied volatility is up 5.3 percent. Meanwhile, a skew between Feb (39 percent) and Mar (35.5) hints at a possible earnings gap move of about $1.50, or 6.5 percent, when SBUX reports after the closing bell.

This straddle will make an interesting case study. Recall, in a long straddle, the strategist is simply buying both puts and calls. In this case, with the stock at $23, they’re buying the Feb 23 calls and Feb 23 puts. They paid $2.07 per straddle.

My guess is: it won’t work. Why? While SBUX might indeed make a big move, and the options have a lot of life remaining (29 days), the negative impact from falling implied volatility will offset any gains from the move in the stock price. Right now, implied volatility in that straddle is around 39 percent. However, due to post-earnings volatility crush, it will fall and this well affect the prices of both the puts and calls. We will check the quotes tomorrow morning and update.

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