BBBY shares have caught a foothold at the critical $40 level
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.
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.