2nd Trade Update BBY Managing Winning Call Calendar, Spreading Dec

2ndTradeUpdateSept。

24th,2012at2:37pm?

WithSeptExpirationoutoftheway,MySept/DeccallcalendarspreadhasjustleftmenakedlongtheDeccomponentoftheinitialspread。

NowIamgoingtospreadtheDeccallsthatIown?

ToRecap,backinAugIboughttheSept/Dec22callcalendarfor。

62?

TheSept22callsthatIwasshortexpired?

worthless?

onFriday,andnowIamgoingtoselltheDec23callsagainstthemtofurtherreducemycostbasis,andthuslessenmyrisk。

Action:Sell1?

BBYDec23Call?

toOpenat。

50(stockref17。

61)

NewPosition:LongBBYDec22/23CallSpreadfor。

12

-Maxgainof。

88at23orhigher,makeupto。

88btwn22。

12and23,maxlossof。

12at22orlower,loseupto。

12btwn22and22。

12。

[private]

[hr]

TradeUpdate,Aug21st,2012:

BBYoriginallyopeneddown10%thismorningasthecompanydidindeedtakethekitchensinkapproachtothisquarter,throwingallthebadnewsintooneearningsrelease?

Theymissedearnings,decidedtosuspendgivingguidance,suspendedtheirstockbuybackprogram,allthatwasleftforthemtodowassaythattheywereturningoutthelightsontheirwayout。

TheCFOleftsomeroomforoptimismontheconferencecall,sayingthathedidntexpect2ndHalftrendstocontinueaspoorlyasthe2ndquarter?

Butatthispoint,themainbullishhopeisMr。

Schulzeandhispotentialbuyoutbid。

Sothestockhasactuallyrecoveredfrommostofitslossesoverthecourseofthemorning,nowdown3%afterstartingdown10%?

MycallcalendarisactuallyabithigherthanwhatIpaidforitwithstockhereasDecembervolhasstayedelevatedasIexpected,whiletheSeptcallisclosetoworthless?

IllprobablysitonmyDecembercallsuntilwegetanotherrumor-basedheadlinethatsendsthisthingonashort-livedrallyagain?

With4monthstoexpiry,thatseemslikeaforegoneconclusion。

OriginalTrade,Aug20th,2012:

Event:BBYreportsfiscal2013Q2earningstomorrowmorningpriortotheopen?

Theoptionsmarketisimplyingabouta13。

5%movevstheavgoverthelast48qtrsofabout7。

7%

Thethingis,sincethefounderandlargestshareholderofBBY?

RichardSchulze?

madepublichis?

intentions?

tobuy,andtakeprivatethestrugglingelectronicsretaileronAug6thwiththehelpofprivateequity,thestockforthetimebeinghasceasedtobeanearningsstoryandnowfallsintothefairlydifficultcategoryofspecial?

situation。

Thismorning,BBY?

announcedtheyhavefilledtheirvacantCEOpost,withanexecutivefromalittleknownhotelmanagementcompanywithnoelectronicsretailexperience,HubertJoly?

ItappearsthattheBBYboardofferedSchulzetheopportunitytoduediligenceonBBYifagreedtoabitofastayonbringingthebiddirectlytoshareholdersandidhereciprocatedwithdetailsaboutpotentialfinancingforthedeal?

AftertheCEO?

announcement?

todayitseemsthattalksbetweentheboardandSchulzehavebrokendown。

SONOWWHAT?

[private]

Soundslikeabigmessright?

WellnormallyitwouldtakeacouplemonthsforanewCEOchargedwithaturn-aroundtogethisarmsaroundthetaskathand,andthenre-setWallStreet/investorexpectationsastothetimeitwilltakeandofferguidancethatwillbe?

achievable?

togivehimabetterchanceofsuccess。

Tomorrowsearningscallwilloffernoneofthis,JolyhasyettojointhecompanyandIwouldbesurprisedifwesawguidancethathelpedorhurtthecompanysdesiretostay?

independent,orSchulzesdesiretotakeitprivate。

MYVIEW?

BBYisdown8%todayasinvestorswhohavepiledinoverthelastcoupleweekshopingforaquickmidtwentiesbidarenowless?

optimistic?

ontheneartermprospectsforsuchaoffer?

Mysensewouldbethattheqtrtobereportedis?

likely?

tobelessthaninspiring,buttheguidancecouldhaveaslightlyoptimistictonetoitasthecompanytriestosugarcoatabadconsumerelectronics?

environment?

andanincreasingly?

competitive?

environment?

withthehopeofbetterthanexpectedbacktoschoolsales,followedbyexpectedpcupgradecyclewithWindows8andthenthemoveintotheHolidayseason?

THEYWILLTRYTOBUYTIME,butinvestorswouldbewisetobeskeptical。

AllofthisnoisecouldsetupnicelyforCalendars?

MysensewouldbetoSelltheImpliedMoveinSeptandBuysomethinglongerdatedthatcouldgivethisstorysometimetoplayout。

LIKELYSCENARIOS:

1。

Q2andGuidancenotasbadassomewouldfear,existing?

management?

takescalming,yetoptimistictoneaboutturnaroundwithnewCEOtakingthehelmnextmonth,butofferslittleonstrategy?

Stocklikely?

under-performs?

theimpliedmovebutcontinuestofillintheAug6thgapasinvestorstakeawaitandseeapproach。

2。

Q2andGuidanceworsethanexpected,butBBYs?

solidbalancesheet,3。

6%dividendyield,healthyshare?

repurchaseandrockbottomvaluationshouldbuoythestocktilltheirallimportantQ4holidayseasonatwhichpointthenewCEOshouldbesolidlyinplace?

AgainIseethisasarelativelyneutralsituationandthestocklikelyfillsinthegapfromAug6th,butdoesntgetnailed。

3。

Q2BeatsandthecompanyraisesforwardguidanceandsuggeststhattheywereopentotalkswithSchulzebuthefailedtomeettheboardsrequestsasitrelatestoduediligence?

InthisscenarioIcouldseethestockbouncingbacktowardsthehighendoftherecentrangebtwn21and22。

4。

Schulzepullstogetherhisfinancingandmakesahostilebidintheweekstocomeandthestocktrades10-15%belowtheproposedvalueofthedeal。

Obviouslytherearemanyotherpotentialscenarios,butoneofthese,oracomboofsomeseemtomakethemostsenseandallcouldmovethestockbtwn$17and$22inthecomingweeks。

CalendarsMakeaLotofSenseIntotheEarningsEvent,SoIamgoingtopickadirection,thinkingthatSchulzeisnotdone,butitwilllikelytakealittletimetogethisacttogetherandIwouldliketofindawaytoownlongerdatedcalls?

IwilladdthatIamnotexpectingadeal,rarelyhaveweseenthisapproachaseffective,buttherewilllikelybeonemorepushwithsomegreaterevidenceoffinancing。

TRADE:BBY($18。

70)BoughtSept/Dec22CallCalendarfor。

62

-Sold1Sept22Callat。

30

-Bought1Dec22Callfor。

92

Break-EvenonSeptExpiration:

-Ifstockbelow22onSeptexpiration,Sept22callexpires?

worthless?

andIowntheDec22callfor。

62,ifthestockmakesamovetomystrikesorabove,ImakethedifferencebtwntheSeptthatIamshortandtheDecthatIamlong。

-IwilllikelylooktospreadtheDec22callatsomepointandcreateacallspread。

-MaxRiskis。

62

TRADE?

RATIONALE?

Thisisnotatablepounderasthevoldifferentialofabout10pointsbtwnSeptandDeciscompellingitisnotjumpoutofyourchairsortofdiscrepancy。

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