Best Buy Options (BBY): Unusual Trading Activity
Options on consumer electronics giant Best Buy (BBY) are lighting up our tracking system this morning with a large amount of trading activity.
Well, it’s a new week with a new list of earnings announcements on deck. The first mega company scheduled to release earnings this week is Best Buy, who announces earnings tomorrow morning before the open.
Even though the market is up nicely this morning, BBY is only trading up a few pennies at $18.20. The stock’s clearly underperforming its peers.
As a result, option traders are jumping all over this by buying put options.
Right out of the gate this morning, one option trader came in and purchased 5,500 BBY June $16 put options. He paid an average price of $0.40 a share for a total cost of $220,000.
Keep in mind this trade is a simple put purchase. This strategy is used when an option trader believes a stock is going to decline in value.
In addition, buying these options without pairing them with any other options leaves traders with unlimited profit potential.
Personally, I like this trade. It’s a simple, inexpensive play on BBY declining in value.
As you know, Best Buy is the largest US consumer electronics retailer.
Aided by the 2009 acquisition of 50% of Carphone Warehouse’s retail operations, the firm now controls around 7% of the $700 billion global consumer electronics market.
They also operate a warranty company. Its “Geek Squad” helps to differentiate consumers’ shopping experiences by increasing their ability to access technical support.
So, why the large put activity?
On the surface, this company seems like a strong company… but they do have headwinds.
For instance…
Mass merchants, warehouse clubs, and online retailers are all vying for electronics retail market share. Moving forward this will lead to increased price competition as well as limit margin expansion opportunities.
In addition, Best Buy is having a difficult time usurping cable providers, iTunes, and Wal-Mart’s proprietary brands for market share in the direct-to-consumer media content distribution.
So, it comes down to this…
Best Buy is having a tough time competing in the market for their services and products.
Technically, the stock has broken down below three key support levels, and option traders believe it’s going even lower.
I think that pretty much says it all.
Option traders believe in further declines, and they’re usually right more often than they’re wrong. We’ll see!
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Category: Unusual Options Trading Activity
