Name That Trade BBBY Edition

Posted by

Event:BBBYreportsfiscalQ2earningsonWednesday,Sept19thaftertheclose?

Theimpliedmoveintheoptionsmarketisonly~7%?

(basedontheSept70straddleexpiringonFriday)?

despitethe?

17%dropinJunefollowingaweaknumberQ1report?

Theimpliedmoveisalsoshyofthe4and8qtraveragemovesof8%and7%respectively。

PriceAction:BBBYhasbeenahigh-flyerformostofthebullmarket,movingfrombelow20toover70between2009and2012?

Itsa17P/Ecompanythathasdefiedthegeneraltrendofboxstoreslosingouttoonlineretailers,maintainingafreshnesstoitsofferingsthatotherretailershavenotbeenabletomimick。

MyViewonVol:LookingattheoptionsmarketaheadofWednesdaysreport,Septemberweeklyoptionsdontlookparticularlypumped?

However,Octoberlookstoocheapbycomparison?

WhydoIthinkOctoberistoocheap?

HereistheOptionViewofOctoberoptions:

Scenarios:TheOct65/75stranglecostsabout$2。

50,bycomparison,theSept65/75stranglecosts$1。

50?

SosellingtheSept65/75strangleandbuyingtheOct65/75stranglecostsabout$1。

00。

LetssayBBBYisunchangedafterearnings?

TheSept65/75stranglewillbepricedclosetoworthless?

WherewilltheOct65/75stranglebepriced?

Thisgetsabitcomplicated,butwecanestimatehowmuchthevolcrushinOctwillaffectthestranglepricingbyassumingacertainmoveinimpliedvolforOctoptions?

IthinkOctoberoptionswillmovedownabout8-9volpointsafterearnings(basedonthewholetermstructureandpreviousearningsmoves)?

Inthatcase,theOct65/75strangle(withthestockunchanged)wouldbewortharound$1。

25$1。

50。

ThemainwaythestranglecalendarcouldlosemoneyisifthereisaverybigmoveinSept(similartothe17%movefromJune),inwhichcasetherewouldbelessthan$1。

00oftimevalueintheOctoptionssincetheywouldbothbefarfromthenewspotvalue(oneworthless,oneworthclosetotheintrinsicvalue)。

IthinkthereissomerecencybiastothepricingoftheBBBYoptionsinSeptvs。

Oct,asmarketmakershavethe17%movefromJunefreshintheirmind?