How a 7% Loser Turned Into a 6% Winner in 12 Months with Options

Starbucks Position Analysis: A 12-Month Case Study

Key Concepts:

• Dollar-Cost Averaging (DCA): A strategy of buying a fixed dollar amount of an investment over regular intervals, regardless of price.
• Premium Selling (Covered Calls): Selling call options against owned shares to generate income.
• Earnings Trades: Utilizing options strategies (spreads, butterflies) around earnings announcements.
• Basis: The initial cost of a position, adjusted for premiums received or paid.
• Delta: A measure of an option's sensitivity to changes in the underlying asset's price.
• Time Stamp: The exact date and time a trade was executed.
• Algo: Refers to algorithmic trading or automated systems.
• LMTs: Limit orders.
• Ghost: A type of order execution.
• Natty Light Ice: A brand of beer, used humorously to suggest needing refreshment during a lengthy analysis.

I. Project Overview & Methodology

The analysis focuses on a 12-month trade in Starbucks (SBUX) initiated on December 27, 2024, with the goal of demonstrating how to actively manage a long-term investment. The core position consists of 100 shares of SBUX, supplemented by a deep in-the-money call option used as a dollar-cost averaging substitute. The presenter meticulously dissects every transaction related to this position, including premium capture, dividends, commissions, and share price fluctuations, to determine the overall profitability. The approach is deliberately “old school,” utilizing pen and paper to calculate results, mirroring a pre-digital trading environment. Transparency is emphasized, including both profitable and losing trades.

II. Initial Position & Premium Selling (Tranches 1 & 2)

The initial share purchase occurred at $92.18 per share. Shortly after, a covered call strategy was implemented.

• Tranche 1: A call option was sold for $0.93 and bought back for $0.16, resulting in a profit of $0.77.
• Tranche 2: Another call option was sold for $1.60 and bought back for $0.31, yielding a profit of $1.29.

These initial premium captures established a positive return early in the project. The presenter encourages viewers to review the historical trades on the Tasty Live show network to see the corresponding Starbucks price at the time of each transaction.

III. Earnings Trades – A Mixed Bag

Three earnings trades were executed on April 29th, involving a long call spread, a short put, and an expected move butterfly.

• Long Call Spread: A 209 call spread was executed, resulting in a $0.35 profit.
• Short Put: Selling an 80 put generated a $22 profit.
• Expected Move Butterfly: A butterfly spread was implemented for $138, but ultimately resulted in a $124 loss due to an incorrect directional prediction. The presenter acknowledges this as a common occurrence and a demonstration of authentic trading. A portion of the butterfly (the 85 call) yielded a $0.14 recovery, reducing the overall loss.

The presenter stresses the inclusion of all earnings trades, regardless of profitability, for a complete and transparent analysis.

IV. Subsequent Premium Selling (Tranches 3-6)

Further premium capture was achieved through additional covered call sales:

• Tranche 3: Sold for $1.33, bought back for $0.29, profit of $1.04.
• Tranche 4: Initially sold for $1.90, but involved another earnings butterfly. The premium sale ($1.90) was linked to a $0.35 buyback, resulting in a $1.55 profit. The earnings butterfly itself resulted in a $0.93 loss.
• Tranche 5: Sold for $0.85, bought back for $0.56, profit of $0.29.
• Tranche 6: Sold for $1.00, bought back for $0.31, profit of $0.69.

V. Dividends, Commissions & Fees, and DCA Substitute

• Dividends: Total dividends received amounted to $245 (per share basis).
• Commissions & Fees: Total commissions and fees were $24.26 (approximately $0.25 per share).
• DCA Substitute (Deep In-The-Money Call): The deep in-the-money call option was initially purchased for $26.70 and currently has a mark price of $30.70, representing a $4 gain.

VI. Overall Performance & Key Takeaways

After accounting for all transactions – premium capture ($610), dividends ($245), commissions & fees (-$25), share price fluctuation (-$668), and the DCA substitute ($4) – the overall profit on the Starbucks position is $562. This translates to a 6.1% return, despite a 7.4% decline in the stock price over the 12-month period.

Notable Quote:

“We made 6% on a stock that went down by over 7%. And how did we do that? We did that by leaning into all the things that are available to us at our disposal. The main one being selling premium along the way.”

VII. Strategic Implications

The case study demonstrates the effectiveness of actively managing a long-term investment by utilizing options strategies, particularly covered call selling, to generate income and mitigate downside risk. The presenter emphasizes the importance of selling calls into strength and remaining patient during periods of stock price decline. The success was attributed to a comprehensive approach, leveraging dividends, a DCA substitute, and consistent premium capture.

This analysis provides a detailed, transaction-by-transaction breakdown of the Starbucks position, offering actionable insights for investors seeking to enhance their returns through active options management.