BBY - Best Buy Earnings

One of things we noticed yesterday on our visit to the Super Wal Mart (which was really a visit to do do some food shopping and to buy some toys for the kids) was the busyness of the home electronics department. That seemed to be the biggest department of interest within what was an overall quiet store. And in looking through the Wall Street research this morning, a report out by Thomas Weisel on Corning glass points to indications of LCD tv sales being strong this quarter. Best Buy has become the catagory killer in home electronics and they report earnings on Tuesday.

A look at the options chain this morning shows speculators are feeling that chain has made a killing this holiday season. They may be correct, but at what cost? Margin sacrifice. This three year chart of BBY shows that the stock always runs going into the end of year and then stalls out.
Given the rising volatility on BBY calls and puts, this looks like a great January to December call spread play. A straight directional play (eg. Dec55 calls) would be a bad idea since implied volatility is up to 65%, meaning Best Buy will have to rise several dollars after earnings to make the play very profitable. We're likely going to go with a call spread involving the December and January 55 strikes on Monday.