Ratio Spread in Bed Bath and Beyond

Home goods retailer, Bed Bath and Beyond (NASDAQ: BBBY), reported better than expected earnings yesterday after the bell; the stock is reacting to the upside today by more than 3.50% to $46.28. Wedbush Morgan also reaffirmed an “Outperform” rating for the stock in addition to being raised to “Buy” from “Hold” by Gilford Securities. The stock hit a new 52-week high of $46.44 before retreating slightly.

I am seeing a ratio spread go up on Bed Bath and Beyond today in the May contracts where the $46 put was purchased 2,500 times and the May $44 put was sold 5,000 times. Net the trade went off for even money. This looks like it is a long stock holder trying to protect gains in the name. While it is slightly bearish given the long put, the trade gives a clear reentry point for bulls—the $44 support line that the stock recently took off from.

I like this ratio spread for even money even without holding long shares, especially if you are bullish on the stock and missed this move. I would trade out of the long put as necessary if the stock does pull back to the $44 level and then let the short puts run.