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February 15, 2013  Fri 2:14 AM CT

BBY: SEE CHART GET CHAIN FIND STRATEGIES
A large downside position led yesterday's option volume in Best Buy even as shares rallied.

optionMONSTER's Depth Charge system shows that a trader bought 10,000 September 12 puts for the ask price of $1 in volume that was 3 times the previous open interest in the strike, clearly indicating a new position. Seconds later, he or she sold 10,000 June 12 puts for $0.72 against open interest of more than 24,000.

This could be one of two types of trades, both looking for the stock to drop. It could be a roll, with the trader selling to close the long puts in June and opening a position in September for $0.28 to get an additional three months for the strategy to work.

The second possibility is that the trader is opening a new calendar spread for $0.28, which would be the maximum risk up to the first expiration. The maximum gain would come with BBY right around $12 at the time of that expiration in mid-June. (See our Education section)

BBY rose 3.9 percent to $15.71 yesterday after trading below $14 in the previous session. The struggling electronics retailer had been stuck around $12 from the end of November until the middle of January.
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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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