Put volume picked up yesterday on Best Buy Co., Inc. (BBY: sentiment, chart, options), as traders on the International Securities Exchange (ISE) bought to open 2,672 of these bearishly oriented contracts during the course of Wednesday's session. By contrast, only 161 BBY calls were purchased yesterday on the ISE.
This rising tide of pessimism is also evidenced by BBY's 10-day ISE put/call volume ratio of 2.39, which reveals that bearish bets have more than doubled their bullish counterparts during the past two weeks. This ratio ranks higher than 63.7% of other such readings taken in the previous year, indicating that puts on the retailer are more popular than usual.
Echoing this downbeat mood, the stock's Schaeffer's put/call open interest ratio (SOIR) arrived today at 1.52, indicating that puts outnumber calls among options set to expire within three months. This reading rests in the 78th annual percentile, as short-term option players have been more skeptically aligned toward BBY just 22% of the time during the past 52 weeks.
As investors gravitate toward puts, BBY's Schaeffer's Volatility Index (SVI) has ticked higher. From its perch two weeks ago at 55%, the SVI has escalated to its current reading of 61%. The jump in this indicator reveals that options on BBY are becoming more expensive.
In the front-month series, it's interesting to note that the June 25 put and the June 32.50 put both carry open interest of 12,752 contracts. These two options currently share the title of peak put open interest for the front-month series. Not far behind is the June 30 put, which has 11,569 contracts in residence. With BBY trading above $37 at last check, all three of these popular put strikes are out of the money.
On the call side, open interest accumulations are noticeably slimmer. The June 35 call is home to peak call open interest for the series, with 9,201 in-the-money contracts in residence. Not far behind is the June 30 call, with 8,462 contracts open. Generally speaking, this skew toward out-of-the-money puts and in-the-money calls underscores the pessimistic mood among short-term option traders.
While the bulk of Wednesday's put volume was of the buy-to-open variety, some traders were also selling puts on the stock. Around midday, a block of 1,000 puts traded at the bid price of $0.50 on BBY's out-of-the-money July 32 put. Open interest rose overnight, strongly suggesting that these contracts were sold to open. In this neutral-to-bullish strategy, the investor is wagering that BBY will maintain its perch above $32 through July expiration.
A portion of yesterday's put volume might have been inspired by a research note from Goldman Sachs, wherein the brokerage firm encouraged its clients to buy BBY puts to hedge against a possible disappointment in the retailer's June 16 earnings report. However, Goldman specifically recommended July 38 puts, and this strike traded volume of just 69 contracts on Wednesday.
Elsewhere on the Street, short sellers are also boarding BBY's bearish bandwagon. Short interest on the shares jumped by 34.2% during the past month, and rose by 16.3% during the most recent reporting period. Now, these shorted shares account for a respectable 7.9% of the stock's float, which translates to about 3.7 days' worth of buying pressure at the equity's average daily volume.
In other words, pessimism is nearly palpable on this retailing issue. Judging by the prevailing sentiment among speculative investors, you might never guess that BBY has bested the broader S&P 500 Index (SPX) by three percentage points during the past 20 days. In fact, the stock sports a solid year-to-date gain of 37%.
Some bears might be jumping on the security's recent retreat from the $42 level. However, the shares' pullback was contained by newfound support at its 80-day moving average, and BBY has since resumed its advance. Meanwhile, the equity's 10-day and 20-day trendlines recently completed a bullish cross, suggesting that additional upside could be in store.
From a longer-term perspective, BBY has also reclaimed a foothold atop its 120-month moving average, which previously contained the stock's lows in late 2002. This trendline is currently hovering in the $35 region, and could provide a technical backstop for the shares.
Overall, the technical picture is not nearly as bleak as option players seem to believe. It's possible that these bears are hedging against a downside earnings surprise, as Goldman Sachs suggested.
However, it's worth noting that expectations were also low ahead of BBY's fourth-quarter earnings, and the retailer effectively blew the bears out of the water with a better-than-expected report. With bearish bets stacking up fast ahead of the event, the stage could be set for another upset from the retailer.
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