Puts Popular Ahead of Bed Bath & Beyond Earnings

BBBY has traded lower after earnings in three straight quarters

by Patrick Martin

Published on Apr 10, 2018 at 12:06 PM
Updated on Jun 24, 2020 at 10:16 AM

Earnings season is ready to start back up, and retail name Bed Bath & Beyond Inc (NASDAQ:BBBY) will get the ball rolling this week, as it's scheduled to fiscal fourth-quarter earnings after the close tomorrow. If past is precedent, though, BBBY stock could be headed for a volatile post-earnings move. 

BBBY stock has had a double-digit negative earnings reaction in three straight quarters. In the last two years overall, the equity has averaged a 7% move the day after earnings, regardless of direction. This time around, the options market is pricing in a much larger-than-usual 15.3% one-day move, per Trade-Alert.

A move of such magnitude to the downside would put the stock at the $17 level for the first time since late 2008. Looking closer at the charts, Bed Bath & Beyond stock has given back 47% in the last 12 months, and has been stuck in a tight channel of lower highs and lows since December.

Analysts are steering clear of the struggling retailer. All 12 of the brokerages covering BBBY rate it a "hold" or worse. However, the security's average 12-month price target of $22.41 sits up from the stock's current perch of $20.98. In the event of another post-earnings skid, analysts may issue more price-target cuts. Just this morning, Deutsche Bank lowered its price target to $21 from $24.

In the options pits, puts have become more popular in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 1.34, which ranks in the elevated 90th percentile of its annual range.

Shifting gears to today, put volume has exploded. Over 4,100 put options have changed hands, four times the average intraday pace, and volume is pacing for the 94th percentile of its annual range. The most popular option overall is the weekly 4/13 18.50-strike put, followed by the 4/13 21.50-strike call. 

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