034. PIGGISH PLAY - Short Starbucks Corp
Updated
Part I. - Opening Statements:
Two things that I like about Starbucks:
1) The coffee is pretty good and the holiday special drinks are amusing
2) Much more importantly, SBUX has some of the most reliably clean bathrooms among all public places
Two things that I dislike about Starbucks:
1) Their naming convention for beverage sizes is illogical and somewhat culturally ignorant. Specifically, I have a major social-justice-esque problem with "Grande" and "Venti".
This would be because:
- "Grande" means "great" in Italian and means "big" in Spanish. Since the Italian translation isn't a valid size, one can only make sense of it if interpreted in Spanish.
- "Venti" can mean either "Winds" or "Twenty" in Italian. While the latter is for sure what they are referring to, I think both are equally inappropriate given that there is no Spanish interpretation for this size.
2) You need to provide them with a first name for the order, irrespective of whether you are the only customer in the store.
Before I move on with the impetus and details of this very elegant looking short setup on SBUX daily, let us examine both of these issues more closely by replaying the last SBUX run-in I had about six weeks ago:
Me (Internal Dialogue): I'm super thirsty and tired right now and I have to donate something to this place if I'm going to use their clean bathroom. F**k it, I'll go with the large Cold Brew this time. Hmm, is it Grande or Venti - I can never remember?
Me (to Register Attendant ["Barista"]): I'll take the "Gran-day" Cold Brew, please.
"Barista": "Sure thing, that will be 6.49. Can I get your name please?"
"Me (Internal): 6.49 is egregious for a cup of coffee. Where the hell do they get off charging that much? Hold up, 6.49 = Grande, which... = medium!? These freaking names are so stupid and don't make any sense. If this place didn't have clean bathrooms, I
swear to god this would be my last time in this place.
"Me (To "Barista"): "Great, thanks. Here's six.. and forty eight, forty-nine cents on the dot."
"Barista": "Awesome, now we'll just need your name for this order."
"Me (Internal): Why on this pandemic-forsaken planet do you need my name? Are you the IRS? Are you planning on sending me flowers? THERE'S NOBODY ELSE HERE, SO WHY DO YOU NEED MY NAME??. Idiot.
"Me (To "Barista"): "Uh, I guess. It's Perma."
"Me (Internal): (Sipping grande-medium coffee drink/spilling a bit and getting angry at Starbucks again) "This place sucks. I know it used to be good, but it definitely sucks now. Where are all the usual crowds that swarm here, pretending to study and what-
not? Well, this is the kind of brick-and-mortar business model that such a pandemic would theoretically crush to death. But, I mean, it's Starbucks and these stores are literally everywhere. Hmm, well real estate prices are nearly as inflated
as stock prices these days, so perhaps SBUX is about to get its second HBS Case Study with a Bankruptcy theme this time around... Yeah, if I see these shops start closing down, I'll be shorting this thing for making me choose the wrong-sized
drink, again.
PART II. - Actual Commentary on the Pig-Play & Fundamental Reasoning for SBUX Short:
If you skipped to here, then I don't entirely blame you. However, you might want to read the last paragraph of Part I (me internal dialogue) because this did in fact happen in real life and is the impetus for taking a sizeable short position against the company. See, I did notice a store closing the other day and then started following the stock a bit. It is bearish indeed. The killer blow, IMO, is that they really missed the bottom line on their ER yesterday, which can be directly linked to their strategic cost of brick-and-mortar cannibalization of properties in major cities that have seen rents skyrocket. While SBUX maintained pretty strong revenue, this was mostly due to newer channels in China that have started realizing gain. Unfortunately, the recipe as it currently stands domestically, is one of disaster because of the sheer number of properties that Starbucks owns. I wholehartedly believe that this ER is the first of many that concludes with 10-dollar per share stock price and forced liquidation in two years or so.
PART III. - Brief Technical Discussion & PIG SPECS:
Directing attention away from the fundamental picture, what we have in front of us is a truly harmonic price chart. Immediately upon opening up the chart, I noticed how symmetrical the price action distributed before the culmination top. The technique that I used here is an application of Gann's timing angles (1x1, 2x1, etc.) that can be found in any "Gann-fan" tool. These angles are naturally geometric and also fall within the generic harmonic scale of 1/8th. Specifically, the ones used above are the common 30 degrees, 45 degrees, 37.5 degrees and 27.5 degrees coming down from the left and intersecting the horizontal axis below. When these angle lines bounce off of the horizontal axis, they will ultimately intersect their original horizontal starting price levels (on the left, drawn across), as well as intersect with the other key angle lines' original starting price levels.
What is not commonly known is that these intersections can make for perfect trades, in perpetuity. I call the exact hit points "landmines" and they are depicted as green and red dots herein. The green dots are past "support" landmines and you can see that price bounces upward as it approaches the landmine's location in time. Conversely, the red landmines act as resistance as price approaches their vector time. Now, the gray dots are FUTURE LANDMINES that could either be GREEN OR RED, depending on whether the price action is above or below the exact hit in price-time. Also, when you have future landmines set up like this, you can without much effort, figure out a projected price path knowing that price will approach these points in the near-future.
So, now that the landmines are in place, and the earnings report confirmed my theory on the declining fundamental picture, I think its time to present you with the option contracts that I've already started accumulating yesterday:
PIG SPECS:
(LONG) PUT POSITION 1: SBUX PUT, STRIKE= 96, Expiration= 2/11, Allocation of Cap = 75%
(LONG) PUT POSITION 2: SBUX PUT, STRIKE = 97, Expiration= 2/4, Allocation of Cap =25%
Reasoning: While the two strikes and expirations are very similar in price and theta, this isn't a typical calendar play. I see this short as a very calculated, tight rip down over the next few sessions. The moves downward are likely to be symmetrical and the daily movements, methodical. I'm basing this off of the symmetry shown in the many years of ascending price action on the left side of the chart. If this assumption holds, then there is little point in getting fancy with OTM strikes and various exp. dates. No need to overthink this one - as it could be just as viable if one were to short the equity directly. I might do this as well tomorrow.
FIN.
-Venti-Bag-PigPlayer
SBUX
SPX
DJI
CURRENCYCOM:US500
CURRENCYCOM:US30
Two things that I like about Starbucks:
1) The coffee is pretty good and the holiday special drinks are amusing
2) Much more importantly, SBUX has some of the most reliably clean bathrooms among all public places
Two things that I dislike about Starbucks:
1) Their naming convention for beverage sizes is illogical and somewhat culturally ignorant. Specifically, I have a major social-justice-esque problem with "Grande" and "Venti".
This would be because:
- "Grande" means "great" in Italian and means "big" in Spanish. Since the Italian translation isn't a valid size, one can only make sense of it if interpreted in Spanish.
- "Venti" can mean either "Winds" or "Twenty" in Italian. While the latter is for sure what they are referring to, I think both are equally inappropriate given that there is no Spanish interpretation for this size.
2) You need to provide them with a first name for the order, irrespective of whether you are the only customer in the store.
Before I move on with the impetus and details of this very elegant looking short setup on SBUX daily, let us examine both of these issues more closely by replaying the last SBUX run-in I had about six weeks ago:
Me (Internal Dialogue): I'm super thirsty and tired right now and I have to donate something to this place if I'm going to use their clean bathroom. F**k it, I'll go with the large Cold Brew this time. Hmm, is it Grande or Venti - I can never remember?
Me (to Register Attendant ["Barista"]): I'll take the "Gran-day" Cold Brew, please.
"Barista": "Sure thing, that will be 6.49. Can I get your name please?"
"Me (Internal): 6.49 is egregious for a cup of coffee. Where the hell do they get off charging that much? Hold up, 6.49 = Grande, which... = medium!? These freaking names are so stupid and don't make any sense. If this place didn't have clean bathrooms, I
swear to god this would be my last time in this place.
"Me (To "Barista"): "Great, thanks. Here's six.. and forty eight, forty-nine cents on the dot."
"Barista": "Awesome, now we'll just need your name for this order."
"Me (Internal): Why on this pandemic-forsaken planet do you need my name? Are you the IRS? Are you planning on sending me flowers? THERE'S NOBODY ELSE HERE, SO WHY DO YOU NEED MY NAME??. Idiot.
"Me (To "Barista"): "Uh, I guess. It's Perma."
"Me (Internal): (Sipping grande-medium coffee drink/spilling a bit and getting angry at Starbucks again) "This place sucks. I know it used to be good, but it definitely sucks now. Where are all the usual crowds that swarm here, pretending to study and what-
not? Well, this is the kind of brick-and-mortar business model that such a pandemic would theoretically crush to death. But, I mean, it's Starbucks and these stores are literally everywhere. Hmm, well real estate prices are nearly as inflated
as stock prices these days, so perhaps SBUX is about to get its second HBS Case Study with a Bankruptcy theme this time around... Yeah, if I see these shops start closing down, I'll be shorting this thing for making me choose the wrong-sized
drink, again.
PART II. - Actual Commentary on the Pig-Play & Fundamental Reasoning for SBUX Short:
If you skipped to here, then I don't entirely blame you. However, you might want to read the last paragraph of Part I (me internal dialogue) because this did in fact happen in real life and is the impetus for taking a sizeable short position against the company. See, I did notice a store closing the other day and then started following the stock a bit. It is bearish indeed. The killer blow, IMO, is that they really missed the bottom line on their ER yesterday, which can be directly linked to their strategic cost of brick-and-mortar cannibalization of properties in major cities that have seen rents skyrocket. While SBUX maintained pretty strong revenue, this was mostly due to newer channels in China that have started realizing gain. Unfortunately, the recipe as it currently stands domestically, is one of disaster because of the sheer number of properties that Starbucks owns. I wholehartedly believe that this ER is the first of many that concludes with 10-dollar per share stock price and forced liquidation in two years or so.
PART III. - Brief Technical Discussion & PIG SPECS:
Directing attention away from the fundamental picture, what we have in front of us is a truly harmonic price chart. Immediately upon opening up the chart, I noticed how symmetrical the price action distributed before the culmination top. The technique that I used here is an application of Gann's timing angles (1x1, 2x1, etc.) that can be found in any "Gann-fan" tool. These angles are naturally geometric and also fall within the generic harmonic scale of 1/8th. Specifically, the ones used above are the common 30 degrees, 45 degrees, 37.5 degrees and 27.5 degrees coming down from the left and intersecting the horizontal axis below. When these angle lines bounce off of the horizontal axis, they will ultimately intersect their original horizontal starting price levels (on the left, drawn across), as well as intersect with the other key angle lines' original starting price levels.
What is not commonly known is that these intersections can make for perfect trades, in perpetuity. I call the exact hit points "landmines" and they are depicted as green and red dots herein. The green dots are past "support" landmines and you can see that price bounces upward as it approaches the landmine's location in time. Conversely, the red landmines act as resistance as price approaches their vector time. Now, the gray dots are FUTURE LANDMINES that could either be GREEN OR RED, depending on whether the price action is above or below the exact hit in price-time. Also, when you have future landmines set up like this, you can without much effort, figure out a projected price path knowing that price will approach these points in the near-future.
So, now that the landmines are in place, and the earnings report confirmed my theory on the declining fundamental picture, I think its time to present you with the option contracts that I've already started accumulating yesterday:
PIG SPECS:
(LONG) PUT POSITION 1: SBUX PUT, STRIKE= 96, Expiration= 2/11, Allocation of Cap = 75%
(LONG) PUT POSITION 2: SBUX PUT, STRIKE = 97, Expiration= 2/4, Allocation of Cap =25%
Reasoning: While the two strikes and expirations are very similar in price and theta, this isn't a typical calendar play. I see this short as a very calculated, tight rip down over the next few sessions. The moves downward are likely to be symmetrical and the daily movements, methodical. I'm basing this off of the symmetry shown in the many years of ascending price action on the left side of the chart. If this assumption holds, then there is little point in getting fancy with OTM strikes and various exp. dates. No need to overthink this one - as it could be just as viable if one were to short the equity directly. I might do this as well tomorrow.
FIN.
-Venti-Bag-PigPlayer
SBUXSPXDJICURRENCYCOM:US500
CURRENCYCOM:US30
Note
*Slight change to the fundamental analysis - I meant the number of properties that SBUX "rents" not "owns". Both scenarios are bad, but I seriously doubt they own many, if any, of their store locations.Trade active
If by 12 pm SBUX doesnt reach below **93 per share**, reduce by half and roll out with the same amount to next week.Trade active
If you havent already, then hold off until 12:30 pm.The main reason is because it seems that the "Bear Market" started back on Jan 13th at 12 pm on the dot. Phases within trends tend to complete in exact minutes, and I would not be surprised if the C leg of this ABC down started exactly at noon today.
Hence, do nothing until 1230 proves SBUX above 93. Otherwise, just hold thru as planned.
Trade active
Heres what I am referring to:Note
Chart above is DIA (Dow ETF) that looks to have changed the main trend on Jan 13th of 2022. The A Wave down is in and the B wave up looks to be finishing up shortly.The C Wave down is where you wanna be positioned for and SBUX is a great candidate.
Trade accordingly.
Trade active
Assuming you split out your positions for this and next week, look to take profits at 3:59 pm today on the ones for this week. Let the half for next week ride on down.Heres a very obvious bear flag spotted, so all looks good:
Trade active
Should start to see some nice gains later today and into mid week. When this thing finally excuses itself from the 90 dollar range, itll be worth it. Hang tight, you should be in the money if you converted half of last weeks into 96s or 95s.Trade active
This turned into a much tougher trade than anticipated. I would not sell until the last minute of the day.Understandably, this requires the nuts, but it will prove to be a much better exit than right here.
Anyone buying a dip here is gonna get fleeced, so if youre still in this, well done.
Trade active
Still holding a rolled out position for mostly tomorrow and partially next week.Just know a bear flag when I see one, and when this does break down once and for all, it will gush to the price levels 10-15 bucks from here.
OTMs for next week are a wise play today since its not a matter of "getting there" once the waterfall snaps the last line of support.
Trade active
puts are a gift. just picked up about 75 next week 88s for less than one tesla put for the same expiry.Trade active
This stock will be used as my go-to intraday short, as a hedge or as a main position if the market reverses quickly.Union-related news over the weekend suggests that the fundamental picture for SBUX is getting worse and the price divergence today is rather significant.
It will be a relatively more severe loss for SBUX than it will the general market during down times. Hence why it is my go-to for at least the coming weeks.
Trade closed: target reached
Closing out some of the targeted posts that are no longer applicable.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.