Trade Update $BBY – Taking My Loss After $35 Break

by Enis August 22, 2013 2:05 pm • Commentary

I had delineated the $35 as the line in the sand for the BBY trade from earlier this week.  Well, the stock has breached that level this afternoon, after another day of strength, so I’m going to exit the trade for a loss here.  While I still think BBY has downside from here, the timing on this trade was just not right, so I’m out.

ACTION: BBY ($35.13) Sold to close the Sept 34 Put at 0.97 for a $0.58 loss

New Trade $BBY August 20, 2013:  No More Circuit City, But Fade City?

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:

BBY weekly chart, Courtesy of Bloomberg
BBY weekly chart, Courtesy of Bloomberg

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.