BBY is now up around 200% from its low in December, and incredible run higher in less than 9 months. And their numbers this morning were very good, so the stock opened up more than 10%.
But what’s interesting to me about BBY is that the expectations are starting to get quite high for a big-box retailer that was left for dead less than a year ago. The stock trades at about 15x 2015 projected earnings, which is an eternity in a company that is still battling the secular headwinds of internet shopping taking away from the in-store experience.
Anyways, we don’t like this name, and think the pop this morning is a good entry for a fade trade, mainly since there are likely a good number of long-term holders who are happy to get out around here:
[caption id="attachment_29450" align="alignnone" width="600"]
BBY weekly chart, Courtesy of Bloomberg[/caption]
So we’re going to play for a quick fade on this pop, taking advantage of reduced implied volatility post-earnings to do it:
TRADE: BBY ($33.90) Buy the Sept 34 put for 1.55
-Bought BBY Sept 34 Put for 1.55
Break-Even on Sept Expiration:
-Profit below 32.45
-Losses of up to 1.55 between 32.45 and 34, max loss of 1.55 above 34
Trade Rationale: I will have a very quick trigger on this trade in either direction (take loss above 35 or take gain on a quick move lower). Risk / reward on both short and long time frames sets up well for a fade trade. I am keeping a very close eye on any rally towards the 35 level going forward.