BBY is trading $34.46, up 1.7% with IV30™ up 4.6%. The LIVEVOL™ Pro Summary is below.
BBY has earnings out tomorrow before the bell.
For the last eight quarters a sale of the BBY ATM straddle the day before earnings and a purchase the day after has been a winner eight times in a row, with a minimum gain of 32.5% and a max gain of 70.7%. The stats I derived from Livevol Excel are included (click to enlarge).
The front month vol is 78, the back month is 42. I have included the Skew Tab (click to enlarge).
Note how much higher the red curve is to the other months. This is not a mistake of course, with just 4 days to go to expo, the earnings event creates a weighted average of vols that is substantially earnings (1/4 days). The vol should be much higher in Sep as it is.
I see the Sep 34 straddle priced at $2.30. The The Options Tab (click to enlarge) is included below.
Trade to Analyze
Sell 1 Sep 34 straddle @ $2.30
Let's see what happens on close tomorrow.
A few things to keep in mind.
1) Market feels bullish lately.
2) I believe this is a huge earnings release for BBY as they project the holiday season.
Some alternatives to naked straddle selling are:
1) Sell the Sep straddle, Buy the Oct straddle (though this is long vega)
2) Sell the Sep straddle buy the 31/37 strangle. This yields a $1.80 credit with protection to both sides.
3) Sell a 34/35 strangle, buy a 33/36 strangle (or something like that).
4) Forget all this analysis, maybe you want to make a bet on direction and buy a call spread or put spread.
This is trade analysis, not a recommendation.
* UPDATE: Disclosure - I sold a Sep strangle and bought a Sep strangle further OTM.
Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html
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