12:30pm (EST)
Futures were pointing towards a slightly higher open after a bevy of economic news was released before the bell – mainly good – which has helped the bulls as they try to extend the current rally. The move up has been somewhat contained as the bears try to hold down the next set of resistance levels for the major indexes.
Wall Street got some more good news from the Retail sector as the sales report for November showed an increase of 0.8% versus expectations for an increase of 0.6%. If you back out auto and gas sales, the core reading showed an increase of 0.8% compared to a forecast of 0.6%.
The Producer Price Index (PPI) showed an increase of 0.8% which was better than the 0.6% that had been widely expected while the core PPI reading showed an increase of 0.3% versus expectations for a 0.2% pop.
Best Buy (BBY, $35.28, down $6.42) is down 15% today after reporting a worse-than-expected quarter while at the same time, lowering 2011 guidance. The company reported earnings of $0.54 a share on revenue of $11.9 billion while analysts were expecting $0.61 a share on revenue of $12.5 billion.
The company also lowered guidance for 2011 to $3.20-$3.40 a share versus their previous forecast of $3.55-$3.70 a share.
We were a little surprised that Best Buy missed on all fronts and we talked about the company’s earnings yesterday inside our Members Area. We said yesterday that the trade looked like a “setup” as we ran the numbers and decided to stay on the sidelines although we wished we would have played a strangle option trade. We had factored a 5%-10% move in the shares but we certainly didn’t figure 15%.
Shares were at $41 going into the closing bell yesterday and we could have used the Best Buy December 40 puts (BBY101218P00040000, $4.55, up $3.85) puts and the December 43 calls (BBY101218C00043000, $0.02, down $0.88) to put on a strangle trade.
The puts were going for 70 cents and are up 550%. The calls were at 90 cents and are down 98%. The total cost of the position would have been $1.60 and you would close the puts out at current levels for $4.55. This gives you a return of 185% even though the calls will expire worthless. Could’ve, would’ve, should’ve…
At current levels, the downside risk in the stock appears to be limited as there is strong support at $34. We would wait to see if shares come down to this level and there is another layer of support at $32 which would be the ideal spot to go long a LEAP option.
As usual, we have a lot to cover in our Members Area as we recommended a NEW TRADE and our subscribers closed out another option trade for a 140% return. We are ending the year on a high note and we are setting up trades for the first 3 months of 2011 as we close out current ones. We have a lot happening and if you are thinking of a membership, now has never better a better time to invest with Momentum Options Trading.
As we head to press, the Dow is up 70 points to 11,498 while the S&P 500 is showing an advance of 5 points to 1,245. The Nasdaq is higher by 10 points to 2,635.
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