In the award winning Put Up or Shut Up, Mike and Dan suggested bearish trades on tech retailer Best Buy . Dan suggested buying the September 37.5/35, one-by-wo put spread, where he bought Best Buy's September 37.5-strike put for $0.75 and then sold two of the September 35-strike puts for a total of $0.50, net net paying a total of $0.25 to make a potential $225 if Best Buy stock goes to $35 bucks on earnings. That's nearly ten times his money, but if the stock does goes below $35, Dan could have the stock put to him, and would begin losing money if it fell below $32.75. And he could lose a potential $3275 is the sky falls and Best Buy goes to zero - certainly an unlikely scenario.
Slideshow: The 10 Hottest Commodities of 2009
Mike suggested a similar trade, more or less doing the exact same thing as Dan: buying the September 37.5-strike put and then offsetting the cost of that purchase by selling two of the September 35-strike puts for a total of $0.50. But Mike didn't want to be exposed should the stock tumble, so he bought one September 32.5-strike put for $0.10. By spending a little extra, Mike's payout remains similar (max gain of $215 if the stock goes to $35 dollars), but because he bought that lower strike put, his max loss is capped at $35.
With Stacey being off the desk, Dan won this one as Scott gave him the nod. But the true test will come tomorrow - when Best Buy releases results.
Questions, comments send them to us at: firstname.lastname@example.org