With a bit of seasonal forgiveness showing up in Best Buy Co Inc (NYSE:BBY) shares, shopping for a well-priced and slightly festive out-of-the-money bull call spread on Best Buy stock looks like a smarter purchase for investors.
Let me explain.
Following a recent and disappointing earnings confessional, BBY stock may not seem like much of a good buy, let alone the proverbial “best buy” promoted by its corporate namesake.
In fact, several sessions back and in the immediate aftermath of the report, Best Buy stock had investors heading for the exits.
The “bah humbug!” catalyst actually wasn’t terrible in my opinion. The announcement featured a mixed Q3 earnings package, marginally weaker guidance and plenty of justifications for the misstep. At the time though and apparently in no mood for one-off excuses like a late iPhone X product launch from Apple Inc. (NASDAQ:AAPL) or a tough hurricane season for the retailer, investors collectively stripped nearly 4% from BBY shares.
Bottom-line though, with the retailer showing its turnaround efforts haven’t been for naught, growth potential still in the forecast and shares having enjoyed some decent bullish technical confirmation over the past several sessions, investors can get long Best Buy stock with a bit more confidence in the return policy if needed.
Best Buy Stock Daily Price Chart
Looking at the daily chart of Best Buy stock, the technical interpretation is for higher prices and an eventual breakout to new highs versus worrying about the possibility of lower prices in BBY.
Part of our confident outlook rests on shares of BBY having a bullish reset as part of a corrective gap fill of 18% following a failed cup breakout attempt. Further, that action has resulted in Best Buy stock building a first stage base that’s currently three months in length.
Lastly and further improving the technical tone of the weekly chart base, is BBY’s earnings-driven doji. The decision candlestick held 200-day simple moving average support, then received additional bullish confirmation of a meaningful low as BBY shares traded above the pattern high of the candlestick and price resistance of the prior month.
Best Buy Stock Bull Call Spread
After shopping around Best Buy stock’s options, one favored spread combination is the Jan $60 / $62.50 call vertical. With shares at $57.02, the bullish package is priced for 60 cents or roughly 1% of the risk associated with buying BBY shares. That’s a nice insurance contract to have in place rather than stress over BBY stock’s own return policy if you catch my drift.
Optimistically, this vertical enjoys a max payout of $1.90 above $62.50 and BBY stock approaches its prior highs into expiration. Given the current price action and a historically jolly time of year, it’s not an unreasonable objective.
Bottom-line though, I’d be inclined to add to the shopping cart and layer a bearish vertical into any price rallies in Best Buy stock and enjoy an unseasonably nice-looking, low to no-cost butterfly if prices permit.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!