Unusual Options Activity: Bed Bath & Beyond (BBBY)

Big bet retail chain will continue dropping after earnings miss.

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  • Shares of retail outlet Bed Bath & Beyond (BBBY) dropped by over 8 percent on Thursday, following poor earnings and poor guidance.

    But traders are betting on even further weakness in shares in the coming months. One option was the November $11 puts on the company, which saw over 10,000 shares trade against a prior volume of 1,100. With shares now under $10, it’s an in-the-money trade that should move penny-for-penny with a decline in shares.

    Bed Bath and Beyond operates a chain of retail stores and uses a business plan of endless coupons to drive customer traffic. The company has lost considerable money, and the most recent earnings numbers offered investors little hope that things would improve anytime soon.

    Action to take: Join traders on this option!

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  • The November put options expire in 126 days. That’s enough time to see shares slide further. More importantly, as an in-the-money trade, the option should move higher as shares move lower.

    A $1 decline in shares should move the option $1 higher. With the option trading around $1.72, the percentage returns are far more magnified than trying to short the shares directly. In this case, the option could move 58 percent higher if shares fall a mere 10 percent from here.