Unusually Large Bed, Bath & Beyond Option Traders Bet Big On More Upside

Bed Bath & Beyond Inc. BBBY shares traded as high as $47.73 on Monday before pulling back to below $33 in an extremely volatile trading session for some high-profile, heavily shorted stocks.

The BBBY Trades: On Monday, Benzinga Pro subscribers received dozens of option alerts related to unusually large Bed Bath trades. Here are a handful of the largest:

• At 10:32 a.m., a trader bought 865 Bed Bath call options with a $20 strike price expiring on Feb. 19 near the ask price at $25.70. The trade represented a $2.22 million bullish bet.
• At 10:35 a.m., a trader sold 1,000 Bed Bath call options with a $30 strike price expiring on Feb. 19 near the bid price at $16.336. The trade represented a $1.63 million bearish bet.
• At 10:36 a.m., a trader bought 531 Bed Bath call options with a $30 strike price expiring on Feb. 5 near the ask price at $17. The trade represented a $902,700 bullish bet.
• At 1:19 p.m., a trader sold 3,500 Bed Bath put options with a $26 strike price expiring on Mar. 19 at the bid price of $3.55. The trade represented a $1.24 million bullish bet.

Related Link: 'Peak Stupidity': The End Of The GameStop Short Squeeze Trade?

Why It’s Important For BBBY Investors: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge.

In this case, given the relatively large size of the largest trades on Monday, they could certainly be institutional hedges.

BBBY's Big Move: Bed Bath shares were up 7.5% in early afternoon trading and are now up 73.7% in the past month as trader enthusiasm for heavily shorted stocks continues to drive share prices higher. However, the short squeeze action sharply reversed course on Monday morning, with Bed Bath, GameStop Corp. GME and other short squeeze stock trading well off their highs.

Bed, Bath & Beyond has been working hard to position its struggling business to succeed in the event of an economic turnaround in 2021. The company has been selling off underperforming businesses to streamline its operations and short up its balance sheet.

However, Bed Bath still has a long way to go to demonstrate it's a successful turnaround story. Even prior to the pandemic, Bed Bath reported a 2.6% drop in revenue and a $137.2 million net loss in 2019.

Like GameStop, Bed Bath shares appear to have gotten caught in a buying frenzy driven largely by the Reddit community. The WallStreetBets Reddit crowd has successfully driven the in share prices of several underperforming companies that have high short interest, including Bed, Bath & Beyond.

On Monday, Loop Capital raised its price target for Bed, Bath & Beyond from $18 to $30, but the new target is still below the stock’s mid-afternoon price of around $33.

Benzinga’s Take: When a stock like Bed Bath gets caught in a wave of “irrational exuberance,” arguments about valuation and fundamentals are totally irrelevant in the near-term.

However, successfully timing the entry and exit points in highly volatile short squeezes can be extremely difficult, as many traders learned the hard way on Monday morning.