Best Buy (BBY) is expected to announce earnings tomorrow. The put we sold is in the money, although it does not expire until Sept. 9. Rather than close the position and re-enter it after earnings, I am recommending we buy a protective put to hedge the position.
Ideally, Best Buy will meet or exceed analyst expectations and the stock will rise. However, in the event it sells off sharply, the purchased put could explode in value. If that happens, we will look to pocket profits to help lower our large net debit on the position and/or roll to a lower strike to keep our hedge in place.
Buying the put will technically create a spread, which will temporarily reduce the amount of capital required for this trade. But please note that the trade will return to a cash-secured put soon and plan accordingly.
Note: No action is needed on the BBY Sep Week Two (9/9) 75 Put at this time.
Current Stock Price: $74.04
Net Debit: $17.96
Action: Buy to open the BBY Sep Week One (9/2) 70 Put for around $1.45, but adjust as needed to buy a put today
New Net Debit: $19.41