Pre-Earnings Put Buyers Line Up for Struggling Bed Bath & Beyond Stock

BBBY stock fell to an eight-year low on Nov. 7

Managing Editor
Dec 19, 2017 at 12:20 PM
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Although the retail sector is signaling a strong close to 2017, not every retail stock is cruising into the New Year. Home goods retailer Bed Bath & Beyond Inc. (NASDAQ:BBBY) reports third-quarter earnings after the close tomorrow, and will look to avoid its recent post-earnings price-action. Below, we will take a look at Bed Bath & Beyond's past earnings moves, and examine how options traders are playing BBBY stock ahead of the event.

Bed Bath & Beyond shares have a dismal history of post-earnings price action lately. Over the past eight quarters the security has averaged a single-session post-earnings swing of 5.4%, and it suffered a 15.9% drop in September, along with a 12.1% fall in June. This time around, the options market is pricing in a much larger next-day swing of 15.8%, regardless of direction, based on at-the-money implied volatility data. A move of similar magnitude to the downside would have the shares flirting with multi-year lows again.

At last check, the retailer was up 0.5% to trade at $23.73, despite receiving a $1 price-target cut to $17 at Citigroup. The bearish analyst attention is nothing new for the struggling retail stock, and new target represents levels the stock has not fallen to since 2008. For the year, BBBY has shed 42%, and fell to an eight year low of $19.07 on Nov. 7, and its most recent rally appears to have been contained by the shares' 100-day moving average. 

bbby stock chart

Although volume has been light, options buyers have preferred BBBY puts over calls. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), its 10-day put/call volume ratio of 1.51 ranks in the 87th percentile of its annual range. Furthermore, put open interest now ranks in the 94th percentile. 

Digging deeper, the January 2018 22.50 put has seen the biggest rise in front-month open interest during the past 10 days, with more than 7,500 contracts added. Data from the major exchanges suggests significant buy-to-open activity here, with those buying the puts expecting Bed Bath & Beyond stock to dip below the strike over the next month.

Shifting gears to today, options volume has exploded, with nearly 7,000 puts traded -- seven times the intraday rate and pacing for the 97th percentile of its annual range. Once again, the January 22.50 put is the most active, with over 5,200 contracts changing hands. 

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