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September 5, 2013  Thu 2:45 AM CT

BBY: SEE CHART GET CHAIN FIND STRATEGIES
Best Buy is trading at its highest levels since 2010, but a large position is looking for a pullback by the end of this year.

optionMONSTER's Depth Charge system shows that a trader bought 5,000 December 40 puts for the ask price of $0.88 and sold 10,000 December 23 puts for $0.14. Volume was far above the previous open interest at each strike, indicating that this is new positioning.

The trade, known as a ratio spread because twice as many contracts were sold than bought, cost $0.60 to open, which is the maximum amount at risk if BBY remains above $30. The maximum gain would come with the stock down at $23 at expiration in mid-December. (See our Education section)

BBY gained 0.51 percent to $37.14 yesterday after peaking at $37.98 earlier in the session. These are the electronics retailer's highest levels since 2010. Shares have climbed from a low of $11.20 at the very end of 2012.  

More than 36,000 BBY options traded in total yesterday, compared to a daily average of 16,000.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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