Options Corner: Use This 'Cheat Code' To Play The Potential Best Buy Recovery

To little surprise, big-box retailing giant Best Buy Co Inc BBY has been one of the worst-hit entities due to President Donald Trump's trade policies, especially surrounding tariffs. As Reuters mentioned earlier this year, approximately 60% of the retailer's total annual cost of goods sold is exposed to China. Combined with broader economic challenges, BBY stock appears to be a poor investment. Still, contrarians may want to keep it on their radar.

Let's keep this on the real: there's a legitimate reason why BBY stock is one of the biggest losers in the trailing five sessions, down about 8%. It's also a stain on the broader market recovery narrative. Since the beginning of the year, BBY is down more than 22%, a sharp contrast to the S&P 500 index's gain of over 6% during the same frame. The negative catalyst can be traced to financial underperformance.

In the company's first-quarter 2026 earnings report, the headline numbers fell short of expectations. Revenue declined by around 1% against the year-ago quarter to $8.77 billion, missing the consensus view of $9.22 billion. Also, earnings per share landed at 95 cents, down from $1.14 one year prior, as well as missing the consensus target by 11%. The fallout has contributed to analysts downgrading BBY stock.

Still, it is worth noting that Best Buy has been focusing on higher-margin initiatives. Therefore, looking strictly at comps — which have been declining — may not provide the full picture. For example, the retailer's domestic gross profit increased to 23.5% last quarter versus 23.4% in the year-ago period. This higher rate largely stemmed from the company's services category.

Now, does the focus on higher-margin efforts eliminate all of Best Buy's problems? No. But the point is that the negativity may be more than baked into BBY stock while not fully reflecting the nuanced picture.

Coincidentally, BBY does appear to be straddling a technical support line, which may hint at a possible sentiment reversal.

Using Empirical Analysis to Fortify a Strategy for BBY Stock

Ordinarily, the typical analysis of a publicly traded security involves drawing a line at a perceived level of importance and calling it a day. But this approach leaves the reader hanging: how do we know that BBY stock may have a non-zero chance of a sentiment reversal?

The common explanation is that other people are also looking at the same thing we're looking at. Of course, the issue here is that I don't know what other people are looking at. I'm not a deity. Therefore, I can only speak for myself. How then do we resolve this problem?

One solution is to strip away all the unnecessary noise and consider the first-order principles of root demand, which is where market breadth comes in. By analyzing sequences of accumulative and distributive sessions, we can answer the core question: at the end of the session, was the market a net buyer or net seller?

Conducting the above exercise across rolling 10-week intervals gives us the following demand profile:

In the trailing two months, BBY stock is printing a "4-6-D" sequence: four up weeks, six down weeks, with a negative trajectory across the 10-week period. Since January 2019, this sequence has materialized 47 times. By default, it carries a negative posture as both the balance of distributive sessions and the trajectory imply pessimism.

However, in 61.7% of cases when the 4-6-D flashes, the following week's price action results in upside, with a median return of 3.98%. Should the bulls maintain control of the market for the next three weeks, the median projected performance is an additional 1.57%. In short, assuming an anchor price of $66.76, BBY stock could march above the $70.50 level over the next few weeks.

Mathematically, the above process can be expressed as P(B|A): What is the probability of B given that A has occurred? In this case, we're looking for the probability of BBY stock rising given that the 4-6-D sequence has materialized. The answer, based on the above framework, is nearly 62% — obviously a non-zero probability.

Using the Cheat Code to Trade Best Buy Stock

The problem with options — as you probably noticed — is that there are so many of them. Thankfully, because of the above calculations, we now have a cheat code. We know what to reasonably expect in terms of magnitude and time frame based on a study of past analogs.

With the market intelligence, aggressive speculators may consider the 67.50/70 bull call spread expiring Aug. 15. This transaction involves buying the $67.50 call and simultaneously selling the $70 call, for a net debit paid of $110 (the most that can be lost in the trade). Should BBY stock rise through the short strike price ($70) at expiration, the maximum reward is $140, a payout of over 127%.

With the mid-August expiration date, traders enjoy some extra time buffer in case unexpected turbulence hits BBY stock. Unfortunately, because the stock market is an open system, no model can perfectly account for unknown variables entering the paradigm and disrupting it. Still, it's my belief that using an empirical approach undergirded by first-order principles gives us the clearest picture of future expectations.

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