A number of sectors have suffered disproportionately among the bearish onslaught this week. Chief among the victims is the retail sector, which was down 7% for the week as of this writing.
The SPDR Retail ETF (XRT) remains firmly entrenched in a downtrend and is fast approaching the panic lows from Aug. 24. A survey of the retail space reveals more than a handful of retail stocks plumbing the depths.
One of the worst is Best Buy (BBY), which just broke support and is cascading lower this morning at a rapid clip. Not even the hope of a the annual consumer showdown at Best Buy stores during Black Friday can slow BBY stock’s swoon. The technical structure of BBY remains a hot mess; it’s below all major moving averages and now has resistance aplenty looming overhead.
Shareholders can certainly pray to the market gods for some type of upside surprise during Best Buy’s earnings announcement on Nov. 19. Count me skeptical, though.
On the volatility front, option premiums are running hot in BBY. The ongoing sell-fest just lifted implied volatility to a new high, making BBY stock options the priciest they’ve been all year. Smells like an option selling opportunity for those willing to brave the uncertainty of its upcoming announcement.
The Best Option Play for BBY Stock
With the charts pointing lower and option premiums elevated, bear call spreads for BBY stock are appealing here. Sell the Dec $37/$40 call spread for 37 cents credit. The short vertical spread is positioned to profit if Best Buy stock price can remain below $37 for the next five weeks.
The reward is limited to the initial 37-cent credit. The risk is limited to the distance between strikes minus the net credit, or $4.63, and will be lost if BBY stock rises above $40 by expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
