Best Buy: How A $26 Bid Almost Left The Firm at Zero
Ophir Gottlieb | Dec 14, 2012 02:00AM ET
Best Buy Co., Inc. (BBY) is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.
I've written several times about BBY, the most recent one on 11-20-2012. You can read that post and "catch up" to the news at hand by clicking on the link:
Best Buy shares up 17percent on $5 billion founder bid report , written by Phil Wahba and Dhanya Skariachan and Olivia Oran
So there you go -- a spurned $24-$26 bid has turned into what seems to be a welcomed bid in the $15-$17 range. Ouch... Having said that, the choice for BBY management now may be between the new lower bid and insolvency.
Let's turn to the BBY two-year Charts Tab(below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
We can see the steady but large destruction of shareholder value over the last two years with stock falling from the mid $30's to now half of that eve on a big up day. In Apr of 2010, this was a $48 stock.
On the vol side we can see how elevated the implied has gotten. I noted this last time I wrote about the firm, and back then the IV30™ was just 79%. Now we're looking at over 90%. I've included the IV30™ two-year chart below.
The trend is an easy one to identify -- "up." The 52 wk range in IV30™ is [28.32%, 96.06%], putting the current level in the 91st percentile (annual). That annual high was reached on 12-10-2012 (i.e. three days ago).
Let's turn to the Skew Tab, below.
We can see that the option market now clearly reflects the higher likelihood of an event (news) within Dec expiry as it's elevated to the back two months. That upside bend to the OTM calls in Dec reflects the risk (potential) of an upside move in the near-term. In English, it reflects the possibility of a takeover bid in Dec expiry. But, the picture is a bit unrepresentative of reality as many of hose calls are less than a nickel bid.
Get The News You Want
Finally, let's look to the Options Tab (below).
Across the top we can see the monthly vols are priced to 114.42%, 83.82% and 63.51%, respectively. There is news in Dec for sure -- the question is, is the news a takeover, or is the news "no news." Either way, it's a vol event.
Disclosure: This is trade analysis, not a recommendation.
Images provided by Livevol®
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.