Shares of electronics retailer
Best Buy Company (BBY) are down about 18 percent over the past year. One trader sees a bigger drop ahead.
That’s based on the March $55 puts. With 80 days until expiration, 6,003 contracts traded compared to a prior open interest of 132, for a 46-fold rise in volume on the trade. The buyer of the puts paid $0.62 to get into the bearish trade.
Shares recently traded for about $80, so they would need to drop a full $25, or 30 percent in the first quarter of 2023. And break to a new 52-week low, given the prior one of $60.78.
The retailer has struggled this year, as electronics demand came down from a covid-era bump higher. Revenue has dropped by 11 percent, and earnings are down by a full 44 percent.
Action to take: Interested investors may be tempted by the company’s 4.4 percent dividend yield right now, as it’s one of the highest for retail companies. But that yield can likely rise on a further drop in shares. Long-term investors can potentially grab shares closer to the mid-$60 range in the weeks ahead.
For traders, the put option looks well priced for a big drop lower. Chances are it won’t move in-the-money. But it’s also an inexpensive options trade that could offer triple-digit returns… and inexpensive downside protection in today’s still-volatile markets.
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.