BBY Analysis

Best Buy Co. Inc. (BBY)

Update 5/26/2017: Shares gapped sharply to the upside after earnings were published and I exited for a loss a week before options expiration.

Shares rose by 17.4% over two days, or a +3,176% annual rate. The options position produced a 47.0% loss on debit for a -17,162% annual rate.

BBY publishes earnings on Thursday before the opening bell.

I shall use the series of monthly options that trade for the last time nine days hence, on June 2.

Implied volatility stands at 45%, which is 4.3 times the VIX, a measure of the volatility of the S&P 500 index.

BBYs IV stands in the 81st percentile of its annual range and the 99th percentile of its most recent broad movement.

The price used for analysis was $51.06.

Premium: $4.00 Expire OTM  
BBY-iron fly Strike Odds Delta
Long 59.00 92.9% 9
Break-even 55.00
Short 51.00 52.0% 52
Short 51.00 48.6% 48
Break-even 47.00
Long 43.00 91.7% 7

The premium is 50% of the width of the position’s wings.

The risk/reward ratio is 1:1.

Decision for My Account

I have entered an order on BBY as described above. The stock at the time of entry was priced at $51.01.

By Tim Bovee, Portland, Oregon, May 24, 2017

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