Options strategist Mike Khouw recommends selling a November strangle on Starbucks (SBUX), now up 12% year-to-date, arguing inflated implied volatility creates a premium-collection opportunity as CEO Brian Niccol’s in-store turnaround gains traction.
With SBUX trading roughly 30 times forward earnings – well above the restaurant-sector median – the stock’s valuation ceiling may limit near-term upside even as operational metrics improve, making the risk/reward calculus particularly relevant for long-horizon shareholders weighing whether to hold or hedge.
Key Takeaways
- Khouw proposes selling Nov $85 put and $105 call for $2.25 net credit.
- SBUX trades at ~30x forward EPS; EV/EBITDA of 17.6x vs. ~12x industry average.
- China unit divestiture (60% stake, completed April) boosts financial flexibility.
Market Reaction & Context
Starbucks shares have gained 12% in 2026, a solid recovery but still lagging the broader S&P 500 consumer-discretionary sector, and the stock has effectively been flat over the past five years 1. Compared with peers such as McDonald’s and Dutch Bros, SBUX carries a premium valuation multiple that analysts say limits the ceiling on any re-rating, even if execution continues to improve.
Implied volatility on SBUX options has averaged materially above realised volatility over the past two years, a persistent gap that Khouw, a strategist at YieldMaxETFs, said makes options sellers structurally advantaged. “Options look expensive relative to how much the underlying stock is moving, making a short premium play attractive,” he said. “Investors appear to be overpaying for uncertainty.” 1
The Trade in Detail
Khouw’s proposed structure is a short strangle: sell one November $85 put and one November $105 call, collecting a combined credit of $2.25 per share 1. If SBUX remains near its current price through expiration, the strategy generates an annualised return of approximately 16%.
The key risk parameters are clearly defined. The seller effectively agrees to buy SBUX at a net cost of $82.75 if shares fall more than 12%, or to deliver stock at $107.25 – a 13% premium to the current price – if the rally accelerates beyond that level.
Fundamental Backdrop
The valuation overhang stems from a consensus forward adjusted EPS estimate of approximately $3.12, placing the stock at roughly 30 times forward earnings 1. Enterprise value stands at 17.6 times forward EBITDA, compared with an industry average near 12 times, leaving limited room for multiple expansion unless revenue growth reaccelerates meaningfully.
One potential catalyst for shareholder returns is the completed divestiture of 60% of Starbucks’ China retail operations, finalised in April, which strengthened the balance sheet and could create capacity for buybacks alongside the existing dividend commitment 1. The chain now operates approximately 41,000 locations globally, up from roughly 700 stores in the mid-1990s.
Turnaround Evidence & Management Direction
CEO Brian Niccol, who took the helm promising to restore the brand’s premium feel, appears to be making measurable progress. Store-level experience scores have improved, wait times are being addressed, and staff engagement has visibly increased in independent checks.
“The experience feels closer to a local business and less like the corporate kiosk McDonald’s has lately become,” Khouw wrote, describing a recent visit to a San Diego-area location. 1
Despite the operational progress, the stock’s five-year stagnation underscores that execution improvements alone may be insufficient to drive a sustained re-rating without a meaningful earnings-growth inflection. Long-term investors will want to monitor same-store sales trends and margin trajectory in upcoming quarterly results.
Outlook
The combination of a modest growth environment, a demanding valuation, and persistently elevated implied volatility creates the conditions Khouw describes as ideal for premium selling. A breakout above $107.25 or a breakdown below $82.75 would represent the primary tail risks for the strategy.
For buy-and-hold shareholders, the fundamental message is more nuanced: operational recovery is real, but the path to significant price appreciation likely requires either multiple expansion – difficult to justify at current levels – or an EPS growth rate that clearly exceeds the current consensus trajectory.
Not investment advice. For informational purposes only.
References
1Michael Khouw (2026-10-05). “Starbucks recovery plan is working. Here’s how Mike Khouw says to trade the coffee giant”. CNBC Options Action. Retrieved 2026-10-05.
2Michael Khouw (2026-10-05). “Why this options strategy might be best for Starbucks”. CNBC Options Action. Retrieved 2026-10-05.