The chart that follows shows how similar the patterns in CMG and SBUX have been of late.
If the patterns hold, SBUX could decline post EPS tonight like CMG did last week, touching its 38.2% Fib retracement support in the low $40s.
The second chart below shows how highly correlated SBUX and CMG have been over the same period.
If the correlation remains, a large valuation gap has opened up with CMG implying SBUX’s fair value is in the low $40s.
Technically, today’s rally in SBUX is ideal, should the stock fail here as it is testing old support as resistance.
A position in SBUX August or September $45 put options (long the options) or higher in strike price might work well heading into EPS.
Would not be willing to risk more than 5-10 bps worth of capital on any such put option position.
At ~$0.40 per contract, should the stock trade to $41 quickly, they could easily climb ~10x in value.
Another option would be long CMG and short SBUX into EPS tonight, potentially split 2.5% of capital between each position.
ANY rally whatsoever in SBUX would necessitate eliminating the positions immediately. If successful, positions could be harvested if the stock touches the low $40-$42 range.