BZ Chart Of The Day: Bed Bath & Beyond

The Bed Bath & Beyond BBBY frenzy of the past week illustrated an important market principle.

The vast majority of retail traders believed the shares would skyrocket. They thought option market-makers would push the price higher because they needed to buy BBBY shares to hedge their option positions.

Many of these retail traders were wrong and lost a lot of money. This is a result of what is called a ‘crowded trade.'

See Also: Here's How Much Ryan Cohen Made From His Bed Bath & Beyond Stock Sales

If too many traders have the same opinion, in this case that BBBY would go higher, there’s a significant chance the market will move in the opposite direction.

This happens because once these optimistic traders invested all of their capital, there’s are no more investors who will continue to buy and keep the uptrend intact.

The money has been spent and the market effectively runs out of buyers. When this happens, the only way it can go is lower.

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