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Best Buy Option Bears Take Profits

BBY's sympathy swoon sparked a run on front-month puts

by 7/12/2012 10:08 AM
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Puts were popular on Best Buy Co., Inc. (NYSE:BBY - 19.27) yesterday, as the electronics retailer backpedaled in sympathy with sector peer hhgregg, Inc. (NYSE:HGG). During the course of the session, BBY saw about 20,000 puts change hands -- more than doubling its average daily volume of fewer than 7,800 puts, and far surpassing the roughly 12,000 BBY calls traded.

Attracting notable attention was the now in-the-money July 22 put, which saw more than 3,200 contracts exchanged. However, the majority of the puts traded at the bid price, and put open interest at the front-month strike depleted overnight, pointing to liquidations. In other words, it appears the July 22 put holders were cashing in their chips in the wake of BBY's recent technical troubles.

Meanwhile, the July 21 put saw open interest increase by nearly 1,700 overnight. However, of the 4,268 contracts traded during the course of yesterday's session, most crossed between the bid and ask prices, making it difficult to tell if they were bought or sold. But, considering the puts are in the money, one could speculate that there was a healthy mix of sell-to-close and buy-to-open activity. By purchasing the puts to open, the traders are expecting BBY to extend its recent retreat over the next week or so.

Speaking of BBY's challenges on the charts, the stock has surrendered about 7.5% since the start of July, and has given up more than 10% so far this week. Earlier in the month, the security gapped higher on hopes for a buyout offer, but turned tail after running into resistance in the form of its 200-day moving average.

Despite all this, yesterday's preference for puts actually runs counter to the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where traders have bought to open almost two calls for every put during the past two weeks. In fact, the stock's 10-day call/put volume ratio of 1.85 ranks in the 69th annual percentile, hinting at a healthier-than-usual appetite for bullish bets over bearish of late.

At last check, BBY has given up its initial gains, shedding 0.5% to linger in the $19.27 region.


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