Trader Takes a Big Bullish Position in BBY

Best Buy Co. (BBY) is a multinational consumer electronic retailer.  The stock is currently trading around $31.45 in a 52 week range of $11.20 – $31.50. The stock has touched a new 52 week high today having seen gains of nearly 165% year to date.  In their most recent earnings release the company saw a decline in comparable store sales, spurring them to begin a new initiative to boost online sales.

As the stock has touched an new 52 week high we have seen a flurry of bullish activity in the BBY options market. Early this morning a trader bought 5,500 of the BBY Sep 32-36 Call Spreads for $1.16, indicating that the trader believes the stock could trade above 36 by September expiration. While this could be a hedge against a short stock position, the fact that the stock is on its 52 week highs is evidence against that fact. It seems more likely that this trader is speculating on some serious upside in BBY.

We define unusual option activity as large block trades that represent a large percentage of daily option volume –  “unusual” if the option volume is above the average daily volume over the past 22 days.  Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. Order flow can however at times be deceiving.  Remember that a large number of participants in the equity options market are hedgers. Long calls could be a hedge against short stock, and long puts might be a hedge against long stock.

The “Institutional Trade”:

A trader bought 5500 BBY Sep 32-36 Bull Call Spread for $1.18

That is buying the September 32 strike call and selling the 36 strike call.
Their Risk:        $118 per 1 lot
Potential Reward: $282 per 1 lot
Cash Outlay:     $649,000          Break even: $33.18  excluding commissions
Max Profit:      $1,551,000

Greeks of the Trade:
Delta:      Long
Gamma:  Long
Theta:     Short
Vega:      Long

(Disclaimer: I am long the BBY Aug 30-32-34 Call Butterfly for $.38 Debit)