Bed Bath & Beyond Downgrade Attracts Option Bears

BBBY puts are trading at four times the average intraday clip

Mar 4, 2019 at 11:22 AM
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Bed Bath & Beyond Inc. (NASDAQ:BBBY) stock is in the red today, after Barclays downgraded the retailer to "underweight" from "equal weight." The analyst also trimmed its price target to $13 from $15, and cut its earnings-per-share estimates for this year and next. The brokerage firm said it has been "increasingly disappointed" with Bed Bath & Beyond's results, and is "less than optimistic" about gross margin stabilization. As such, BBBY stock is down 3.7% at $16.07, and put options are flying of the shelves.

The security is on pace to close back below its 200-day moving average, following a roughly two-week stretch atop this trendline. And while BBBY shares have surged more than 50% since their Dec. 24 low of $10.46, recent upside momentum stalled in the $17 neighborhood.

BBBY stock chart March 4

Bed Bath & Beyond puts are active as a result. So far, around 5,642 puts have changed hands already -- three times the average intraday put volume, and more than double the number of BBBY calls traded. Most active is the January 2020 12.50-strike put, with buyers expecting the retail stock to descend beneath $12.50 by January 2020 options expiration.

The security is no stranger to negative attention from analysts and options traders, though. In fact, not one of the 15 analysts following BBBY consider it worthy of a "buy" or better rating, and the consensus 12-month price target of $12.87 represents a nearly 20% discount to current levels.

And at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BBBY has racked up a 10-day put/call volume ratio of 2.15, indicating traders have bought to open more than two puts for every call on the stock in the past two weeks. This ratio is in the 98th percentile of its annual range, pointing to a much healthier-than-usual appetite for bearish bets over bullish of late.

Echoing that, Bed Bath & Beyond sports a Schaeffer's put/call open interest ratio (SOIR) of 3.17, indicating that put open interest more than triples call open interest among options expiring within three months. This ratio is at the very top of its annual range, suggesting near-term options traders have rarely been more put-biased in the past year.




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