Starbucks (SBUX) shares have climbed 12% year-to-date under CEO Brian Niccol’s turnaround plan, prompting options strategist Mike Khouw to recommend selling a November strangle to harvest elevated implied volatility.
With the stock trading around 30 times forward earnings – a meaningful premium to the broader quick-service restaurant sector – investors face a balancing act between improving operational momentum and a demanding valuation that limits near-term upside. 1
Key Takeaways
- Khouw recommends selling November $85/$105 strangle for $2.25 net credit.
- SBUX trades at ~30x forward EPS, well above sector average EV/EBITDA multiples.
- China retail divestiture finalized in April, boosting financial flexibility.
Market Reaction & Context
Starbucks shares are up 12% in 2026, outpacing many consumer discretionary peers, yet the stock remains essentially flat over the past five years – a stretch that has frustrated long-term holders. 1 By comparison, the broader restaurant industry trades at roughly 12 times forward EBITDA, while Starbucks commands an enterprise value of 17.6 times that metric, signaling that the market has already priced in a successful recovery.
The consensus forward adjusted earnings-per-share estimate stands at approximately $3.12, placing the stock at around 30 times forward earnings. 1 That gap between operational improvement and valuation headroom is precisely what shapes Khouw’s options thesis.
Detailed Analysis
Khouw, a strategist at YieldMaxETFs, argues that SBUX options have consistently overpriced actual stock movement for the past two years. 2 “Over the past two years implied volatility has averaged well above realized volatility,” he said, making a short-premium strategy the logical expression of that gap. 1
The specific trade involves selling one November $85 put and one November $105 call, collecting a net credit of $2.25. If the stock remains near current levels through expiry, the strategy generates an annualized return of approximately 16%. The key risk parameters are getting effectively long the stock at $82.75 – roughly 12% below current levels – or short at $107.25, about 13% above. 1
Fundamental Support & China Overhang
A significant structural change backstops the bullish underpinning of the trade: Starbucks completed the divestiture of 60% of its China retail operations in April, reducing direct exposure to a highly competitive and politically sensitive market. 1 That transaction strengthened financial flexibility and, according to Khouw, creates room for future share buybacks alongside the company’s existing dividend commitment.
The China move is particularly relevant for macro-focused investors tracking competitive positioning, as domestic rival Luckin Coffee has aggressively expanded its store footprint and price-competitive menu in recent years, pressuring Starbucks’ premium positioning in that geography.
Operational Outlook
On-the-ground observations cited by Khouw reinforce the narrative that Niccol’s operational fixes are filtering through to the customer experience. Store employees are described as more engaged, and the in-store atmosphere has moved closer to what Starbucks built its brand on – a differentiated experience rather than a transactional coffee kiosk. 1
Starbucks now operates approximately 41,000 locations globally, up from roughly 700 in the mid-1990s, a scale that creates both competitive moat and operational complexity. 1 Managing that footprint while restoring brand premium is the central execution challenge Niccol inherited when he took the helm.
Conclusion
For income-oriented options traders, SBUX presents a textbook short-volatility setup: a credible turnaround story buffered by a rich valuation ceiling and a floor supported by capital-return potential. The November $85/$105 strangle, at a $2.25 credit, defines both the reward and the risk in concrete price terms. Whether the trade succeeds ultimately depends on Niccol keeping the recovery on track without a catalyst – earnings surprise, macro shock, or China headline – pushing shares outside that band.
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.