Electronics retailer Best Buy (BBY) has been trending down in recent weeks. One trader sees shares continuing lower in the next two months.
That’s based on the June $67.50 puts. With 60 days until expiration, 10,078 contracts traded compared to a prior open interest of 410, for a 25-fold rise in volume on the trade. The buyer of the puts paid $2.30 to make the bearish bet.
Shares recently traded for about $73, so they would need to fall about $6.50, or nearly 10 percent in the next two months for the option to move in-the-money. With a 52-week low of $60.78, it’s possible that the trade moves in-the-money, especially as Best Buy next reports earnings in late May.
Best Buy looks like a reasonable value here, with shares down 22 percent over the past year. The company trades at 11 times earnings, and the recently-raised dividend yields about 5 percent here.
Action to take: With shares in a downtrend, investors should wait for a lower price before buying shares, likely in the high $60 range. That will provide a higher starting dividend yield, and better returns on the upside.
For traders, the short-term trend is down, and the June puts are well positioned for mid-double-digit gains on a continuation of that trend over the coming weeks. Traders may want to consider taking profits before the next earnings report.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.