Thanks folks. You have given me some good ideas to consider.
Oh absolutely. This is more in the nature of putting a scare into them. They should be able to easily go around this encounter. Of course if they choose to go in, that risk is on them.... but it's generally wise to tread carefully when going after PCs' magic items. A treasured magic item can become part of a character concept, and make people very salty when they lose it.