Excess Gas, Cash and a Dividend for Starbucks (SBUX) Shareholders
Broad markets moved lower Wednesday afternoon with the drop in the Euro following the Fitch downgrade of Portugal’s sovereign debt. This dollar strength is causing a riff in commodities futures and commodity and food stocks as well, since most commodities are dollar denominated.
To compound the overall weakness in commodities, but specifically in crude oil, was the unexpected increase in crude inventories, up 7.245 million barrels to 351.26 million barrels. This level is above the average inventory for this time of year and was unexpected for many investors. This news caused a subsequent drop in oil prices. On the flipside, gasoline stockpiles dropped 2.715 million barrels, unexpectedly to 224.559 million barrels.
Another important announcement came from Starbucks (SBUX). The company declared its first dividend ever of .10 cents to be paid on April 23rd to shareholders of record as of April 7th. This not only represents the maturing of Starbucks, but may also be a sign of things to come, since many companies in the S&P seem to have excess cash on their balance sheets .
The 382 non-financial firms in the S&P have more than 940 Billion dollars in cash and short-term investments. This money could potentially be thrown back to investors in the form of a dividend or used to purchase other companies.
Speaking of acquisitions, we saw heavy options activity and heard takeover chatter in Boyd Gaming Corporation (BYD). This may be in reaction to rumors that Las Vegas Sands (LVS) may acquire the company. At this point, this is ONLY RUMOR and extremely important to understand that rumors come and go and should not be considered a prediction of future activity.
In BYD specifically, we saw buyers of the April 10 calls predominantly, a total of 10,163 by 1:40 p.m. ET on Wednesday, as well as some April 12.50 calls. The ratio of calls to puts traded today in April options is 6 to 1, indicating that there is a preference for the calls. Calls give the investor the right to buy. Puts, on the other hand, are the option to sell.
If you are looking at any of these names be sure that you do your homework and understand any risk that is associated with your strategy of choice. Heavy options volume does NOT indicate that a stock will rise or fall in the future.
Remember that options can be bought or sold and volume does not indicate which. These are just a few of my team’s observations from this week’s activity. Please feel free to add others in the comments.
Photo Credit: lighthack
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