Call Options Or Put Options On Best Buy (BBY)?

| November 14, 2012 | 0 Comments

BBY OptionsBest Buy (BBY) is the leading retailer of technology products and services.

BBY currently trades for $15.77 per share.  The shares are down 43% from the 52-week high of $27.63.  But the stock has recently rebounded 10% from the 52-week low of $14.38.

Is this an opportunity buy call options on BBY as their “Renew Blue” turnaround begins?  Or should you buy put options on BBY as their big box stores weigh the company down? 

The bulls make a convincing argument…

Despite the company’s recent troubles, Best Buy is still the leader in a growing industry and they’ve held onto market share in most product categories. And the company boasts a strong customer base with amazing brand recognition.

Put simply, that’s a solid foundation to build a business on.

Now, BBY’s new CEO has a five point plan called “Renew Blue” to revive their slumping top and bottom line performance.

First off, they’re addressing the issue of losing sales to online retailers like (AMZN).  BBY will now match the price of appliances and electronics at any online retailer.  This action alone should go a long way toward stabilizing sales in the ultra competitive market.

Then BBY will turn their attention toward growth.  They’ll accomplish this by improving the customer experience online as well as in their stores.

In essence, BBY is doing what they should have done years ago.

They’re refocusing on growing their online presence, restructuring stores to reflect the shift to digital media, and creating a membership program with more rewards.

The result should be a dramatic reversal in same store sales growth and higher operating margins.  As the impact of the turnaround plan begins to show up in the company’s performance, the stock should soar in the weeks ahead.

But the bears have a compelling case as well… 

Best Buy’s turnaround plan laid out some aggressive growth and profit targets.  But achieving them is an entirely different story.

And unfortunately, the plan lacks one important thing… details!

At this point, the turnaround is nothing more than a pipedream.  They didn’t layout concrete steps they’ll take to achieve them.

The fact is same-store sales have declined in eight of the last nine quarters.  And they’re expected fall again when they report earnings next week. 

To make matter worse, customers are now accustomed to using Best Buy as a showroom and then purchasing the products online at a cheaper price.  And they haven’t revealed a plan to stem the flood of lost sales.

If these trends continue through the all-important holiday shopping season, investors aren’t going to care about a potential turnaround.  They’re going to leave this stock and the dying business model for retailers that have a business that thrives in today’s market. 

If you think the bulls are right, take a look at buying the BBY March 2013 $18.00 calls for around $1.35.

If you think the bears are right, take a look at buying the BBY March 2013 $14.00 puts for around $1.60.

Good Investing,

Corey Williams

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Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.