Jack Daniel’s maker, Brown-Forman, reported Q4 2025 results this morning before the markets opened. The news was not comforting for long-time shareholders. As a result, its shares are down more than 15% as I write this minutes into Thursday trading. 

Yesterday, out of 730 unusually active call options, Brown-Forman had one in the 13th spot with a Vol/OI (Volume to open interest) ratio of 24.06. 

This particular call accounted for 60% of its options volume on the day, 2.9 times its 30-day average. Someone was making a big bet on earnings. 

Based on its current share price of $27.55, the beleaguered stock has lost 66% of its value since reaching its all-time high of $83.40 on September 1, 2020, during the height of the pandemic. 

We all know the stories about the additional alcohol consumption during the stay-at-home orders. Liquor stores couldn’t keep up with demand. They’ve been paying for it ever since. Perhaps no one more than Brown-Forman. 

The latest news won’t help its cause. The stock’s move lower suggests that a long straddle is the play, given the continued volatility.

Using yesterday’s action in concert with today’s early action, I’ll consider whether the long straddle is indeed the straddle to play in these circumstances. 

First the News

Both sales and earnings in the fourth quarter of 2025 fell short of analyst estimates. On the top line, sales were $894 million, $69 million shy of the Wall Street consensus. On the bottom line, it earned 31 cents a share, three shy of analyst expectations. 

Bullish investors aren’t freaking out because of the miss. They’re more concerned about the bloodletting continuing indefinitely. 

“We anticipate the operating environment for fiscal 2026 will be challenging, with low visibility due to macroeconomic and geopolitical volatility as we face headwinds from consumer uncertainty, the potential impact from currently unknown tariffs, and lower non-branded sales of used barrels,” stated the company’s press release. 

As a result of the challenging operating environment, Brown-Forman expects organic net sales to decline in the low single digits in fiscal 2026 (April year-end), with a similar decline in organic operating income. 

Assuming a 2% decline for both, the company is expected to generate $3.92 billion in net revenue in 2026, with $1.39 billion in operating income, resulting in a 35.4% operating margin.

While disappointing, that remains a very healthy operating margin. Its fiscal 2025 free cash flow was $419 million, down slightly from $431 million in 2024; however, its free cash flow margin was 10.0%, just 80 basis points lower than in 2024. If it can maintain a 10% free cash flow margin in 2026, its share price is reasonably inexpensive. 

Its current enterprise value, according to S&P Global Market Intelligence, is 28.94 times Brown-Forman’s unlevered free cash flow over the past 12 months through April 30. That’s the lowest multiple in the past decade. In 2020, at the height of its share price, the multiple averaged between 66x and 87x.

In the long term, Brown-Forman boasts some excellent brands beyond Jack Daniel’s, including Woodford Reserve, Old Forester, el Jimador, and Herradura, which should enable it to continue generating free cash flow. 

The Long Straddle Play

The straddle involves either buying or selling both a call and a put at the same strike price and expiration date. The long straddle involves buying a call and a put, whereas the short straddle involves selling a call and a put. 

Okay, now that that’s out of the way, the long straddle expects volatility to increase, with a significant price movement in either direction. Given today’s downward action, the increased volatility would seem to exist in only one direction, barring any good news on the tariffs front in the next two weeks.   

Here’s how the June 20 $32.50 call looked at yesterday’s close. 

Based on the $32.50 call, the long straddle would be successful if Brown-Forman’s share price is above $36.85 or below $28.15 at expiration. 

The maximum profit on the downside would be if the share price were to drop to zero. That isn’t happening. However, based on the $27.55 share price, it’s already generating a profit, as indicated above. 

As I write this, the $32.50 call volume is 107, with an ask price of $0.20, while the $32.50 put volume is seven, with an ask price of $5.00, for a net debit of $5.20, $0.85 (19.5%) higher than yesterday’s close. 

Naturally, the long straddle is more expensive, with a net debit of nearly 19% of the share price, compared to 13.1% from yesterday. 

At this point, you’re better off using a strike at or below $30 if you believe it will continue falling over the next two weeks. The net debit for the $30 long straddle would be $3.35 with a profit probability of 35.9%. 

The Short Straddle Play

Unlike the long straddle, the short straddle expects the share price to remain between the upper and lower breakeven prices. In this case, you’re selling the call and the put for income. 

Here’s how it looked at yesterday’s close.

Your loss probability of 75.7% was very high. As you can see with the $30 strike, the premium income from the call was significantly higher than the $32.50 because it was further ITM (in the money), while the put income was lower for the $30 because it was further OTM (out of the money).

Here’s how things look now. 

The loss probability on the $30 short straddle has increased by 600 basis points to 53.5%. The loss probability on the $32.50 strike is 51.1%, nearly 50/50. You’d be successful, keeping the net credit of $2.65 in the case of the $30 strike, and $4.85 for the $32.50 strike. 

The Bottom Line

The counterintuitive thought would be that the stock can’t possibly fall much further, although it did trade below $10 in March 2009 during the financial crisis.

Whether it’s the $30 or $32.50 strike, the short straddle seems to me to be the riskier of the straddle plays, despite the income generation potential and the higher profit probability. 

Therefore, I’d argue that the long straddle's risk/reward proposition does indeed make it a better play when it comes to Brown-Forman stock.