Saturday, June 23, 2007

A Winning Trade on Best Buy (BBY)

Dear fellow stock options traders :

I have previous experience trading Best Buy (BBY) and understood that it would be a good candidate for the earnings gapping analysis technique.

Best Buy (BBY) would be reporting earnings on 18 June 207 after-market-close. After some research of the recent development of this company, I found that on 14 June 2007, Stifel adjusted their model on BBY to reflect softer comps. They expected BBY's 1st Quarter domestic comp to fall below their previous est of 3.0%. Over at Motley Fool, an article stated that although 13 of the analysts felt Best Buy would outperform the market going forward; it was kind of strange when you noticed that over the last 52 weeks, the stock has in fact underperformed the S&P 500 by more than 33 percentage points.

That prompted me to paper-trade 5 lots of July 47.50 Put at $160 each on 18 June 2007 (eve of earnings announcement) when the stock price was around $48.00.

After the market close, BBY reported 1st Quarter earnings of $0.39 per share, $0.11 worse than the Reuters Estimates consensus of $0.50; although revenues rose 13.9% year/year to $7.93 bln vs the $7.83 bln consensus. Co also issued downside guidance for FY08.

On 19 June 2007 (Tuesday), BBY gapped down -$2.10 to $45.90 when market opened. I observed the Level 2 Code, intra-day chart & volume movement and sold my positions for a paper profit of around $285.00 around 10.00am EST.

If you've managed to find out about the Live Freely! Seminar from my stock options trading blog and subsequently sign up for it, I hope you could do me a kind favour and mention Mr Tony Chai from Batch 14 as the referrer. Thank you for your kindness.

Wishing you Profitable in your Options Trading too.

Yours Sincerely,

Tony Chai