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Markets

Best Buy draws protective position

Option traders are turning cautious on Best Buy after catching a rally in the retailer earlier this month.

optionMONSTER's Depth Charge tracking system detected the purchase of 8,000 Weekly 35.50 puts expiring on Oct. 30 for $1.26 and the sale of a matching number of 31.50s for $0.20. There was barely any open interest at either strike when the session began, which indicates that these are new positions.

In this vertical spread , long puts lock in the sale price of the stock while short puts force investors to cover. Combining the two allows investors to leverage a move between the two prices so they can hedge a position in the stock or speculate on a drop.

Yesterday's trade was likely protective. It cost $1.06 and will return 277 percent if BBY closes at $31.50 or lower on expiration. (See our Education section)

BBY fell 2.76 percent to $35.52 yesterday. It lit up our bullish scanner on Sept. 1 , more than doubling the money for subscribers of our premium InsideOptions Pro service. The gains followed a strong quarterly report last month.

Overall option volume in the name was 6 times greater than average yesterday, with puts accounting for more than 70 percent of the total.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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