Best Buy (NYSE:BBY) is a specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. The company operates retail stores and commercial Websites under the brand names Best Buy (BestBuy.com and BestBuyCanada.ca), Future Shop (FutureShop.ca), Magnolia Audio Video (MagnoliaAV.com) and Geek Squad (GeekSquad.com), as well as an outlet store on eBay. Best Buy stores offer merchandise in four product groups: consumer electronics, home office, entertainment software and appliances. Consumer electronics, which consists of video and audio products, is currently the largest product group based on revenue.
Best Buy emerged in one of our proprietary scans for technically "bullish" issues with favorable option premiums. The recent rally in retail shares has helped the stock rebound from a 9-month low in April and now it is trading near the top of a long-term "comfort zone" that exists between $50 and $55. Barring any catastrophic news or events, BBY's share value should remain in a relatively small range in the coming weeks. Traders who agree with a neutral-to-bullish outlook for the stock should consider this position.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bullish/credit spread):
BUY PUT JUN-47.50 BBY-RW OI=3689 ASK=$0.40
SELL PUT JUN-50.00 BBY-RJ OI=23932 BID=$0.60
INITIAL "NET-CREDIT" TARGET = $0.25-$0.30
POTENTIAL PROFIT (X 10 contracts @ $0.25) = $250
MARGIN REQUIREMENT (X 10 contracts) = $2250
RETURN ON INVESTMENT (max) = 11.1%
COST BASIS = $49.75
INITIAL EXIT STRATEGY:
Since this issue has a relatively "range-bound" character, we are considering the use of a "covering" strategy with longer term ($50) put options to offset potential losses from a decline below the sold strike price. However, there are no options for July (yet) so we are going to utilize the basic "stop-loss" approach until they become available. Once the position is open, traders should place a (contingent) order to close the short ($50.00) put options if the stock price moves below $51.00 on an intraday basis. A "net-debit" order of $0.50-$0.60 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.