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Does Today's Best Buy Co Inc (BBY) Rally Have Legs?

Today's Best Buy Co Inc call buyers may be looking for short-term protection

by 6/25/2014 1:42 PM
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Best Buy Co Inc (NYSE:BBY) has tacked on 3.8% this afternoon to trade at $30.15, on a report that the electronics retailer could sell its China-based business. As such, calls are trading at three times the average intraday volume, and short-term contracts are in demand, based on the stock's surging 30-day at-the-money implied volatility, up 10.3% at 29.1%.

Seeing notable buy-to-open activity is BBY's July 32 call. By scooping up these contracts, today's traders are betting the shares will topple the 32 strike by the close on Friday, July 18, when front-month options expire. This would bring the equity into territory it hasn't explored since mid-January, when a disappointing holiday sales report resulted in a sharp gap lower. As with all long calls, potential profits are theoretically infinite on this trade, while potential losses are capped at the initial premium paid.

Finally, it's worth noting that 9.4% of Best Buy Co Inc's (NYSE:BBY) float is sold short, which would take roughly seven sessions to buy back, at the stock's average trading volume. Therefore, it's possible a portion of today's call buyers are short sellers looking to hedge their bearish bets against an extended rally over the next several weeks.


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