BBY Analysis

Update 5/26/2015: BBY gained enough from its post-earnings collapse of implied volatility that exited the position to avoid further time risk.

Shares declined by 0.8% over six days, or a -48% annual rate. The optons position produced an 82.8% yield on debit, for a +5,037% annual rate.

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The consumer electronics retailer Best Buy Co. Inc. (BBY), headquartered in Richfield, Minnesota, publishes earnings Thursday before the opening bell.

I shall use the MAY5 Weeklys series of options, which trades for the last time nine days hence, on May 29.

[BBY in Wikipedia]

BBY

Ranges

Click on chart to enlarge.

BBY at 10:20 a.m. New York time, 30 days hourly bars

Implied volatility stands at 40.1%, which is 3.1 times the VIX, a measure of volatility of the S&P 500 index. BBY’s volatility stands at the peak of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	36.15	38.29	37.18
Lower	31.87	29.73	34.13
Gain/loss	6.3%	12.6%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

Given the downtrending bias of the chart, I've shifted the trade slightly to the downside in order to improve the risk/reward ratio, leaving $1.15 of the one standard deviation range beyond the profit zone.
Iron condor short the $35 calls and long the $36 calls,
short the $31 puts and long the $30 puts
sold for a credit and expiring May 30
Probability of expiring out-of-the-money

MAY5	Strike	OTM
Upper	35	62.5%
Lower	31	80.8%

The risk/reward ratio stands at 1.1:1. The premium is $0.47 ($0.33 for the calls and $0.14 for the puts).

Decision for My Account

I've opened a position in BBY as described above.

-- Tim Bovee, Portland, Oregon, May 20, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.