How To Earn 8.2% Yield While Waiting to Buy SBUX 30% Cheaper

At about $97.93 a share, Starbucks (SBUX) is trading about 13% below its 52W high.

Do you think SBUX stock is a good long-term bet at current levels? What about at a 30% discount at about $70 per share? If you think that is a steal, and have some cash ready to go, here is a trade.

8.2% annualized yield at 30% margin of safety, by selling Put Options.

• Sell a long-dated Put option expiring 2/19/2027, with a strike price of $70
• Collect roughly $291 in premium per contract (each contract represents 100 shares)
• That’s about 4.2% annualized yield on the $7,000 you’re setting aside for the possibility of buying the stock
• This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 8.2%
• And you give yourself a chance to buy SBUX stock at deep discounted price of $70

However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.

Possible Trade Outcomes: You Win Either Way

But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.

First, you want fundamentals to check out. For details, see Buy or Sell SBUX Stock or check Starbucks Investment Highlights

Second, you want to better understand competitive advantage and industry tailwinds.

Why Hold SBUX Stock Long-Term

Starbucks’ strong brand, deeply integrated loyalty program, and positioning within a secular growth trend towards premium coffee provide a durable competitive advantage. The company’s ability to generate consistent free cash flow allows for shareholder returns and reinvestment in the business. Despite potential for near-term volatility, these factors make it a compelling long-term holding.

Competitive Advantage

We classify SBUX’s economic moat as WIDE, with the primary source being Switching Costs

• The Starbucks Rewards program is a significant driver of customer loyalty, with members spending three times more than non-members.
• As of 2024, the loyalty program had nearly 34.3 million active members in the U.S. and accounted for a substantial portion of sales, demonstrating a strong digital ecosystem that encourages repeat business.
• The company has a history of implementing price increases, and while some customers have expressed frustration, Starbucks has stated they have not seen a meaningful impact on demand, indicating a degree of price inelasticity.
• The brand has successfully positioned itself as a ‘third place’ between home and work, fostering a strong sense of community and customer habit.

See Starbucks Full Analysis.

Industry Tailwind

The industry tailwind is STRONG, with CAGR projection of 10.4% (Source: Research and Markets, Mordor Intelligence)

Secular Trend: Shift to premium/specialty coffee experiences
Key Risks: Key risks include climate change impacting coffee bean production, rising labor and production costs, and significant competition.

Financial Guardrails

Cash Generation: Positive Free Cash Flow
Balance Sheet: The company carries a significant amount of debt and has negative shareholder equity, which warrants monitoring.

If you are not comfortable with options or stock-specific trades, Portfolios are the way to go as they can protect and grow wealth even better.

The Best Investors Think In Portfolios

Individual stocks are unpredictable. A smart portfolio helps you invest, limits downside shocks, and provides upside exposure.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? HQ Portfolio has posted more than 105% in cumulative return since inception, with less risk versus the benchmark index, as evident in HQ Portfolio performance metrics.