Best Buy (BBY) - Option Market: Huge Risk in Next 4 Days

BBY closed Monday trading at $36.86, down 2.5% with IV30™ up 4.0%. The LIVEVOL® Pro Summary is below.


Provided by Livevol

Update 1-14-2014:
Quick note that the vol difference between the font two months has exploded even further, see the image below from 1-14-2014 (the rest of this article was published 1-13-2014). Check out Jan vs Feb vol, below.


Provided by Livevol


Best Buy Co., Inc. is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.  I know we're four trading days away from expiry, but this is an incredible volatility phenomenon in my opinion.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

Let's jump right into it by  looking to the Skew Tab (below).

Provided by Livevol

We can see how elevated those Jan options are (4 day options) relative to Feb (with respect to volatility).  Without looking up a single news search, I can tell you that the option market reflects a high likelihood of news/announcement/something before the end of trading this Friday.  We'll look how elevated the vol is in Jan in a sec, but first...

We can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

BBY stock has recovered incredibly well from what actually looked like a risk of insolvency at one point.  This was an $11 stock a little ore than a year ago and just a couple of months ago it traded as high as $44.48.  Whoa...

The 30-day implied volatility tells a fairly calm story, believe it or not.  Let's turn to a two-year IV30™ chart in isolation, below.

Provided by Livevol

We can see those highs in the vol as the stock was making the lows.  Since then, however, the volatility has slowly dissipated, reflecting less risk as expressed by the option market while the stock rose ~300%.  So why the article today?...

It ain't the 30-day vol that I'm looking at.  It's the four day vol.  Check out the Options Tab (below).

Provided by Livevol

Across the top in the green numbers we can see Jan is priced to 94% while Feb is priced to 44%.  Just look at a few of the actual options in Jan.   The $39.5 strike calls are priced at over $0.50.  The $34 strike puts are priced over $0.40.  In fact, the $41.5 strike class (not pictured here) are worth $0.20 and the Jan $30 strike puts are still bid.  What?...

We'll see in a few days if the option market is in fact right... Right now it reads: "huge risk in a few days."

This is trade analysis, not a recommendation.

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