BBY Analysis

The consumer electronics retailer Best Buy Co. Inc. (BBY), headquartered in Richfield, Minnesota, closed Friday with high volatility relative to its one-year range compared to other highly liquid symbols

[BBY in Wikipedia]

BBY

I shall use the SEP series of options, which trades for the last time 32 days hence, on Sept. 16.

Ranges

Implied volatility stands at 41%, which is 3.4 times the VIX, a measure of volatility of the S&P 500 index. BBY’s volatility stands in the 45th percentile of its annual range. The price used for analysis was $34.55.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	38.67	42.79	N/A
Lower	30.43	26.31	N/A
Gain/loss	±$4.12	±$8.24

Implied volatility 1 and 2 standard deviations; central tendency earns move

The End of Accounting and the Path Forward for Investors and Managers by Baruch Lev and Feng Gu

The Trade

BBY is in the 3rd wave up of a correction of the downtrend that began in March 17, 2015. It remains well above the 50-day moving average and is near the 61.8% Fibonacci retracement, a level that often  -- but not always -- serves as a point of reversal or at least a stall.

Using Elliott wave analysis: If it is indeed a correction, then the 3rd wave might be the final leg up. However, if it is an impulse wave, then the 3rd would be the middle wave much more upside potential.

Given the directional ambiguities in the chart, I shall attempt a direction-neutral position.

Iron condor, short the $37.55 calls and long the $38.55 calls,
short the $30.55 puts and long the $29.55 puts,
sold for a credit and expiring Sept. 17.
Probability of expiring out-of-the-money

SEP	Strike	OTM
Upper	37.55	81.3%
Lower	30.55	81.5%

The premium is $0.29, which is 29% of the width of the position’s wings. The stock at the time of the order was priced at $34.56.

The risk/reward ratio is 2.4:1.

The zone of profit in the proposed trade covers a $7 move either way.

Decision for My Account

I placed an order on BBY but was unable to get a fill at my asking price. I shall try again on Aug. 22, the day before earnings are announced.

-- Tim Bovee, Portland, Oregon, Aug. 15, 2016

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.


Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

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.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.