Bed Bath & Beyond Stock Looks Bound For a Breakout

Retail stock Bed Bath & Beyond Inc. (BBBY) could make bearish options traders pay

Mar 1, 2017 at 1:51 PM
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Retailer Bed Bath & Beyond Inc. (NASDAQ:BBBY) has recently carved out a foothold atop the round-number $40 area. This level is significant on multiple levels, representing the year-to-date breakeven mark, two times the stock's 2008 lows, and half its all-time highs -- all of which could reinforce support. Moreover, BBBY was booted from the Nasdaq-100 Index (NDAX) late last year, and data indicates stocks removed from this index tend to outperform over the next 12 months.

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If history repeats itself, BBBY could benefit from unwinding negativity. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at a put-skewed 2.13, just 6 percentage points from a 52-week high. As these bears hit the exits, the shares could catch an options-related tailwind.

BBBY could also benefit from upgrades, as all 16 analysts tracking it have doled out a "hold" or worse rating. Plus, with a short-interest ratio (SIR) of 6.00, there's more than a week's worth of pent-up buying power on the sidelines, based on average daily trading levels -- suggesting a short-squeeze rally could be in the cards.

It's an opportune time to purchase premium on short-term options right now. BBBY's Schaeffer's Volatility Index (SVI) of 23% ranks in the low 10th annual percentile, hinting at lower-than-usual volatility expectations. Not to mention, the stock's Schaeffer's Volatility Scorecard (SVS) is a lofty 73, suggesting the shares tend to make bigger moves than the options market has priced in over the last year.

Finally, our recommended call option has a leverage ratio of 5.4, and will double in value on a 17.6% gain in underlying BBBY shares.

Subscribers to Schaeffer's Weekend Series service received this BBBY commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Series is one of our most popular trading services.

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