* Green Mountain put volume surges before Starbucks news
* Green Mountain downside March puts heavily traded
* Trading in Starbucks $52.50 strike calls stand out
By Doris Frankel
March 9 A heavy burst of bearish option
action in Green Mountain Coffee Roasters Inc in the
hours before Starbucks announced plans to launch a single-cup
coffee and espresso brewer has raised eyebrows among some option
Green Mountain's Keurig machines are the No. 1 single-cup
brewers in the United States. Starbucks Corp, the
world's biggest coffee chain, provides coffee refills for Keurig
machines under a partnership with Green Mountain and its
announcement late on Thursday was seen as a competitive threat
to its partner.
Option bets on a big move up in Starbucks shares and on a
sharp drop in Green Mountain stock preceded the news.
"The level of aggressiveness that traders early on Thursday
came for Green Mountain March downside puts was very
suspicious," said Alan Thompson, options market maker at Timber
Hill, a division of Interactive Brokers Group. "It raised our
The put buying in Green Mountain "was off the charts into
last night's announcement," said Jon Najarian, a co-founder of
online brokerage TradeMonster in Chicago, who also noticed very
strong buying of upside calls in Starbucks on Wednesday.
"We expect that the regulators will take a deeper look at
both Starbucks and Green Mountain ahead of (Thursday) night's
announcement," Najarian said.
The U.S. Securities and Exchange Commission, which looks
into unusual stock and options activity, declined to comment.
Shares of Green Mountain ended at $62.40 on Thursday. The
stock plunged as much as 24 percent in after-hours trade, but
regained some ground after Starbucks said on a conference call
that it would continue to supply Green Mountain with
Starbucks-branded, single-serve coffee pods called K-cups.
When the dust settled, the stock had dropped 16.7 percent.
Green Mountain shares on Friday ended 15.72 percent lower at
"In Starbucks, there was a small uptick in front-month
(option) premiums, as the stock was bid throughout the day going
into the news conference," Timber Hill's Thompson said. "But the
price action was nothing to the extent of what we saw in Green
Shares in Starbucks rose 2.92 percent on Friday to end at
$51.84, after setting a new record high of $52.47 earlier in the
Option volume in both stocks popped up on Thursday. In Green
Mountain, turnover was five times the average daily levels with
80,000 puts traded versus 55,000 calls, Trade Alert said.
"Such heavy bearish flow in Green Mountain shows that option
traders were bracing for a big decline in the shares," said
Trade Alert president Henry Schwartz.
The March $60 strike puts which expire at the end of next
week, were the most popular, trading at an average price of
$1.60 apiece. During Friday's session, the premium for those
strikes rose to $7 per contract, a profit of 337 percent,
Schwartz said. Green Mountain shares were around $62.50 on
Thursday when most of those $60 puts were purchased.
Starbucks option volume on Thursday was four times the norm
with calls leading puts by 26,000 to 16,000 contracts, data from
Trade Alert showed. Buyers of the $52.50 calls in the March and
April expirations were active and premiums in both contracts
were up between Thursday and Friday.
Schwartz did not view Thursday's flow in these stocks as
suspicious since traders knew that the Starbucks action would
have a direct impact on Green Mountain.
But he noted the trading of Green Mountain weekly puts stood
out on Wednesday. Option volume in Green Mountain on that day
consisted of 14,000 puts and 9,200 calls, which was about 82
percent of typical average daily turnover, he said.
Interestingly, traders favored the short-term in-the-money
$65 strike puts that expire on Friday after the close with the
stock trading at $64.16. The puts had volume of 2,479 contracts
with most fetching $1.65 per contract.
Exchange data shows much of the flow was a customer buying
those strikes as an opening position, Schwartz said. Those
weekly contracts on Friday cost $11.00, with potential paper
profits of 566 percent in two days.
"Wednesday's trade in Green Mountain looks suspect but
Thursday's flow suggest that option traders were anticipating
correctly what was coming down the pike," Schwartz said.