This Trade Was Updated January 26, 2012 Re-opening this bearish trade on BBY. US dollar weakness means higher oil prices likely are ahead, which will affect retailers in a bad way. Also, the stock is in better position now to short than when I started this trade a few weeks ago.
Re-opening this trade for a bearish directional trade on Best Buy. This time with a longer dated option. With a bearish reversal in the markets today, I closed some bull trades, and got aggressive on the bearish side at least for 2-3 days to see if the market holds its next support level.
Dec Retail sales report was not all that great, and one of the weak spots was electronics sales.
“Sales at electronics and appliance stores fell 3.9% in the month and were flat from a year ago.”
http://www.factset.com/insider/2012/1/1-12-12-holiday-retail-sales
Also, with a cheaper dollar expected ahead (fed intervention in interest rates), oil prices may rally, hurting retail stocks.
For chart analysis, see the chart attached. The stock is failing to rise into the gap resistance zone (yellow line at $25.50), has a negative momentum divergence (bearish) since January 9th, today the price dropped below the uptrend line (bearish), and with one more strong drop tomorrow will cause a breakout to the downside on the ROC level I’ve drawn with the yellow line (bearish reversal confirmation).
Option Trade Details:
| The Ticker: | BBY | 4.5 (2 votes) |
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| The Trade: | Buy to Open Mar 2012 23 Puts at .45 or better. |
Trade Modified: | January 26, 2012 |
| Target Price: | $TBD per share |
Additional Image Provided by Terrence Chan:
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11 Responses to Short the deadcat bounce in BBY
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I suspect that the bears that piled on after the “radioshock” might have been shaken out yesterday. Do you think you have enough time on the put?
I am still not in but I am getting tempted to jump in when there are signs that the rally is loosing steam (which I don’t see too many of yet though – for my part I am still looking to see DBC break out of Oct/Nov. high as confirmation, because I can’t rely on bond-prices to come down).
I agree – some serious short covering has been going on. OBV has been very strong during the last 2 days so there is a lot of volume behind the rally in BBY. What look to be 2 consecutive bullish engulfing candles developing. It’s come pretty far in 2 days and overhead resistance at 25.60 is not far away. If it does not pause through that zone, I will probably close this trade, but for now I expect for it continue to channel between 25.60 and 24.60
I do see a Rate of change bearish divergence since feb 6. I also took a look at the chart from Sept to November and noticed a few other occurrences of consecutive Long white candles like we’ve seen the last 2 days. None of those occurrences was followed by a bullish 3rd follow through day. Just based on these 2 facts, I think the stock ends lower tomorrow so I shorted today at 25.34. I will use a tight stop at 25.60.
RSH wireless sales weakness a harbinger of weak sales at BBY? http://finance.yahoo.com/news/Best-Buy-shares-fall-apf-3548734031.html?x=0
Likely. I think companies like Newegg etc has these guys by the Os. Many of these products are “fact-sheet products” where price matters a lot. The only in-shop retailers I would consider on the long side are those that don’t sell the product but an experience, like women going shopping together heh (e.g. LTD perhaps).
My BBY trade is doing well today. I am holding for more gains.
I just re-opened my bearish trade on BBY. Click to read more
I am also interested in this idea. But for me first I would like to see BBY break down through 24.95 that it has bounced off on 4 days now, and secondly it has to stop showing strength (+0.80% today) relative to RTH (+0.05%).
I closed the BBY put trade today – see trade update
I like options over stock because of greater leverage. It also lets me keep my position size small which is part of my risk management strategy. That being said, this trade is quite risky because I am fighting time decay. However, I believe the overall market’s implied volatility will increase next week due to all the earnings reports due out, and the likelihood that stocks go down next week since stocks are overextended from their moving averages. The increase in IV will probably outweigh the time decay, from my experience in a situation like we are in now. So going long puts will be profitable of both BBY heads lower and IV goes higher.
It’s not crashing down (relative strength is fair), but at least only recovering now to 24.50 in less volume than the opening sell-off. One to keep a close eye on, I think the way it closes today is important.
So I am not that experienced with options but volatility and prices shot up today. What were your reasons for buying put instead of say simply shorting it?