Monday, July 16, 2012

Best Buy (BBY) - Risk Rises After Restructuring News; Vol Term Structure is... Interesting...

BBY is trading $18.86, down 0.7% with IV30™ up 1.4%. The LIVEVOL® Pro Summary is below.


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Best Buy Co., Inc. is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.

This is a vol note both due to rising (elevated) vol and a really interesting term structure vol difference.  So, two vol phenomena to examine.  Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side, we can see the decline since late Mar, when the stock was trading just below $28. Looking a bit more myopically to the recent trend, we can also see a dip from $22 to now below $19 in just the last two weeks (ish). There has been some important news of late in BBY. I've included a snippet, below:

On the heels of saying it would lay off 600 Geek Squad workers, Best Buy Co. Inc. says it will hire 500 skilled employees for the unit.


The new Geek Squad jobs will focus less on repair and more on higher-skilled activities, such as working with small businesses.

On July 6, Best Buy announced it would lay off 2,400 employees nationwide, including 600 Geek Squad employees. Those layoffs were expected to conclude by Aug. 1.


In March, the electronics retailer announced plans to close 50 stores and lay off 400 people by 2015.

Source: Kansas City Business Journal via Yahoo! Finance Best Buy will hire 500 skilled Geek Squad workers, written by Brenna Hawley, Web Reporter.

Looking to the vol, we can see the implied rising as the stock has been dipping. Other than the vol reached into the last earnings report (highlighted), this would be an annual high in IV30™. To get a better look at the vol over the last year, I've included an IV30™ chart over the last twelve months, below.

I've drawn in that horizontal line to help illustrate the level today relative to the past year. In certainly appears that the restructuring news has been digested by the option market as increased risk (increased vol). This elevated vol was the first of two phenomena I noticed in BBY.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols. Here we'll see the second vol phenomenon.

We can see that the front month (week) is elevated to the back two. I note that the next earnings release for BBY could be in the Sep cycle (and just outside of Aug). We can see that Sep is elevated to Aug, but it's quite curious how elevated Jul is to Sep (even with expo this close the difference is pretty large). Tricky...

Finally, let's turn to the Options Tab, for completeness.

Across the top we can see the monthly vols are 68.32%, 57.38% and 61.26%, respectively for Jul, Aug and Sep. Let's just say, if earnings are in fact in Sep (but not Aug), then, ya know, there is some cool stuff going on here.

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