Chicago, July 20 - Starbucks Corp.'s shares rose 4.6 percent on Thursday and its options volume surged amid market rumors that soft drink maker PepsiCo Inc. is looking to expand its partnership with the coffee shop chain
Spokesmen for both Starbucks and PepsiCo, however, said there were no plans to change the relationship. PepsiCo distributes bottled Starbucks Frappuccinos to grocery stores and other retailers.
"Starbucks stocks and options are up on unconfirmed talk that Pepsi is looking to expand its footprint through a possible partnership with the company," said Paul Foster, options strategist at Web information site theflyonthewall.com.
Starbucks spokesman Brandon Borrman said the Seattle-based coffee shop chain has a long-standing relationship with Pepsi, "but we aren't in the process of making any changes to the relationship."
A PepsiCo spokesman also said there are no plans to change that relationship. PepsiCo used to own Pizza Hut, Taco Bell and KFC fast food restaurant chains, which are distant competitors to Starbucks. But it spun them off as Yum Brands Inc.
Starbucks' stock closed up $1.21 to $27.71 on Nasdaq. It went as high as $28.17 during the session, its highest level since early June. As of Wednesday, Starbucks shares were down 25 percent for the year.
Options analysts said several other factors converged on Thursday to contribute to the higher Starbucks share price and heavier-than-usual options activity, including upcoming July options expiration and short covering.
In another development announced Thursday, Hershey Co. has struck a deal with Starbucks to market premium chocolate under the coffee shop chain's brand.
"Thursday's (share) strength might have prompted some short sellers to buy shares and bank profits, which added fuel to today's gains," said Frederic Ruffy, analyst at options education firm Optionetics in California.
Short-sellers bet against the market by picking stocks they believe are going to decline in value.
In the U.S. options market, the monthly expiration of July options may be influencing some of the heightened activity seen in Starbucks, Ruffy said.
According to market research firm Track Data, 124,176 calls compared to 37,712 puts traded in Starbucks, far outnumbering is normal turnover of 46,298 contracts.
The July contracts expire Friday after the close and some players are probably using the share strength to close bullish trades or roll them forward to August, said Ruffy.
That would explain why both the July and August calls granting investors the right to buy Starbucks shares at $27.50 each are seeing the most action, he added.
Starbucks is also due to release third-quarter earnings on Aug. 1, which explains a good part of the positioning in the August series, said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.
"A constellation of events, some credible, some unconfirmed or unlikely, has converged today to give the run on the share price added momentum," Darst said. (Reporting by Nichola Groom and Doris Frankel)