Bearish Options Betting Peaks Ahead of Best Buy Co Inc (BBY) Earnings

Best Buy Co Inc (BBY) put options have been enormously popular ahead of the retailer's earnings release on Tuesday

May 23, 2016 at 11:51 AM
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Options trading on retail stock Best Buy Co Inc (NYSE:BBY) has taken an extremely bearish turn ahead of the company's fiscal first-quarter earnings release tomorrow morning. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open more than 10 puts for every call. What's more, the resulting put/call volume ratio of 10.28 sits just 2 percentage points from an annual peak, signaling a highly unusual interest in BBY put options. Put open interest now stands at a 12-month high for BBY, as well. 

Looking closer at the data, the weekly 5/27 options series has been extremely popular during the past two weeks. The 30-, 30.50-, and 31-strike puts have added the most open interest during this time, with the first strike stealing the show by adding nearly 22,000 positions -- almost tripling the next-closest options. Data across the major exchanges confirms traders have been buying to open these weekly puts, meaning they expect BBY to fall below the round-number $30 level before the close this Friday, when the options expire. 

As for today's trading, volume for both calls and puts is running at 12 times the intraday norm. Weekly 5/27 puts are again popular, but on the other side of the aisle, traders are opening long calls at the June 33.55 strike, in hopes of BBY rising above this level before front-month options expire at the close on Friday, June 17. 

Outside the options pits, BBY is a favorite of short sellers, with 9.5% of its float sold short. More importantly, it would take these bears essentially two weeks to cover their positions, at the stock's average daily volumes. 

On the charts, Best Buy Co Inc (NYSE:BBY) is up 10% in 2016, including a 2.1% gain today to trade at $33.02. The aforementioned $30 area -- home to BBY's year-to-date breakeven level -- has contained recent pullbacks. On the other hand, the stock's 320-day moving average sits right overhead, and has repeated rejected rallies in 2016. Regardless, the options market is expecting a major post-earnings move, as it's currently pricing in a one-day swing of 13.6% for BBY.

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