Expensive Options?

This morning while getting ready for a typical Monday at CBOE I flipped on Bloomberg TV. The first scrolling headline stated, “BBY Options Most Expensive Since April 2010”. I had a good idea what this meant but got out my trusty to do notebook to follow up on this statement.

The meaning here is that the implied volatility of BBY options was at their highest level in over 2 years. A quick check of www.ivolatility.com confirmed this. The chart below uses a standard calculation to display 30 day implied volatility for BBY options. The spike on the right side of the chart (highlighted by my subtle red arrow) indicates rumors on the horizon last week regarding BBY stock. The thinking that ‘something is about to happen’ came true this morning as BBY announced a management change and the stock reacted by trading up almost 5% today.

BBY Chart.jpg