Your Best Buy Around Earnings
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Your Best Buy Around Earnings

Henry Gambell - February 25, 2016

Good evening everyone, this is Henry Gambell with, and in today's free video I wanted to look at Best Buy (BBY) with you.

Now, who knows what's going to come out of the report tomorrow morning. Earnings reports are kind of a gamble in their own right, but this is what I saw in the charts. You may look at this and say that the squeeze has fired long, obviously it's had a very strong run up into earnings, but any time an underlying market makes a bullish move into the report, I think that's extremely difficult to buy.

There are times where, of course, you can keep pushing through, but the main way that I analyze trends and look at markets like this, is to step back and say, "what is our relationship here to the 10 and 34?" Generally speaking, this is a good place for the weekly chart to revert back to the mean and fail from here. So to me, that looks like a nice bearish area to consider.

Then we come back over to the daily charts where we're just coming up into the 100 day moving average. So this, combined with the 200 just overhead, kind of gave me the stance of wanting to be a little bit bearish on this, but not just outright.

So what's the way that we could set this up, so that if the underlying was to move sideways, we can make money, if it rolled over we can make money, and then of course, as always, you've got to define your risk. In this case, for me, it was to to the buy side. One of the strategies I've been using around this is an unbalanced fly. The reason for that is because, where are you going to get the most premium in the contracts you sell? In this case, the 31 50's are going to be the most juiced up calls, because they're sitting right at-the-money. So, a lot of ways of saying this.

If you pull over your options chain, and drop down just into these contracts themselves, we'll look at intrinsic and extrinsic value. You're just trying to set this up in a way that you can sell the most juiced up contracts. By setting this up for each of these, so what we did here is sell three, buy one, and then buy two. We did that two times, taking in a credit on each of them.

And then where these strategies make the most sense, or where the visual aspect of it becomes helpful, is looking at it here. So in the analyze tab, what this will set me up for with Best Buy is that if it explodes higher, I have to define my risk. We've done that, obviously, by the number of contracts we take. If it completely rolls over and dies, I will still make money. That's where the part of taking in the credit on the fly is more forgiving than doing it as a debit.

The next scenario will be if they have a neutral report. Maybe we just open up right there near the 100 day moving average. If that's the case, that's where the strategy will do the best. I just like getting into a point, especially around earnings trades, where you can give yourself risk in only one direction, and if the report is neutral, you correct all that I.V. crush, and hopefully you guys find that helpful.

One other thing I want to make you aware of. Our next free webinar. This will be on March 1st, a Tuesday, at 7 p.m. Central. John Carter is going to be discussing some of the strategies he's been using in what has obviously been an extremely volatile market.

If you're interested, you can sign up on the link:

Have a great night, and we'll touch on Best Buy tomorrow in the next free video. I will talk to you then.