Trade Alert: Preserve Gains on Best Buy

Yesterday, I sent you an alert to grab the July 21, 2017 $60 call option on Best Buy (NYSE: BBY).

That was at about 11:33 a.m. Eastern time. Our official entry price, by taking the price that minute and the price an hour later, then using the average of the two, is $2.25.

Just a few hours later, the option kept climbing, and our limit orders to sell half at a 50% gain were filled.

A 50% gain in just a few hours is fantastic — but my hope is that it’s just the start of a much greater gain. Either way, I’m happy to lock in profits on half of our trade in such a quick time frame.

The stock has pulled back some today — down 2% early on. This volatility in the price has allowed any orders that were not filled yesterday to get filled today.

Let’s place our customary stop to preserve gains after we lock in a gain on the first half of the trade — but due to the short-term volatility, our stop will be for a lower percentage than we’re used to.

Since we are currently near breakeven in this position, I want to give the option a little bit more room to fluctuate.

If you followed our typical logic and already placed a stop order at a 10% gain, you were likely stopped out this morning. If that’s the case, then congratulations — you locked in a 30% overall gain in less than 24 hours!

But if you haven’t placed that stop yet, then we’ll allow for a little bit of volatility by placing our stop at a price that would be a 25% loss. We are near breakeven as of right now on the second half of this trade, and the option prices are volatile early this morning. So by placing the stop at a 25% loss, we are still looking at a 12.5% overall return, but we’re allowing the trade to stay open a little longer to see if the drift will kick in.

Based on our official entry price of $2.25, I’ll place my stop at $1.68. Be sure to place your stop at whatever nets you a 25% loss on the second half of this trade.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: Best Buy Co. Inc. (BBY)
Option Type: Call Option
Expiration: Jul-21-2017
Strike Price: $60
Option Symbol: BBY170721C00060000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Stop-Loss Price: Whatever nets you a 25% loss.
Trade Deadline: Keep this order open until it is filled or canceled.

I also have a quick update for you on Western Digital. Yesterday, we also ratcheted up our stop-loss on this position to preserve a 30% loss. After I sent the alert, however, the price continued to slip. Our option was stopped out yesterday afternoon.

The first price below my official stop of $2.15 was $2.05, so that’s where we will officially exit in the portfolio, handing us a 33% loss.

While this is not ideal, it is far better than the 75% loss we were nearing just last week. So although a loss is a loss, this is a much more manageable loss, as far as I am concerned.

If your stops were not executed for any reason, go ahead and exit at the market today.

That’s all for this week.

Have a great holiday weekend.

Regards,

Chad Shoop, CMT
Editor, Earnings Drift Alert