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Best Buy (NYSE: BBY - option chain) shares are headed higher today after the company reported a fourth-quarter profit of $530 million, or $1.35 per share. BBY's adjusted profit of $1.61 per share beat analysts' estimates of $1.48 per share. The company was helped by lower capital spending during the quarter, which counteracted the lower consumer spending. Investors expected a relatively weak holiday season from Best Buy, but this was still the second most profitable quarter ever for the company in terms of adjusted EPS. Combined with the broader market rally, these are good signs for BBY. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BBY.
BBY opened this morning at $37.00. So far today the stock has hit a low of $36.79 and a high of $38.95. As of 11:25, BBY is trading near the highs of the day at $38.91, up 5.45 (16.3%). The chart for BBY looks bullish and S&P gives BBY a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just three months as long as BBY is above $25 at June expiration. BBY would have to fall by more than 35% before we would start to lose money.
BBY hasn't been below $25 except for two days since December and has been climbing steadily recently, showing support around $32.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in BBY.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just three months as long as BBY is above $25 at June expiration. BBY would have to fall by more than 35% before we would start to lose money.
BBY hasn't been below $25 except for two days since December and has been climbing steadily recently, showing support around $32.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in BBY.
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