Bed Bath & Beyond Options (BBBY): Unusual Trading Activity
Options in Bed Bath & Beyond (BBBY) traded a large amount of contracts yesterday before the end of the trading session.
The bulls are coming out in droves to shop for Bed Bath & Beyond call options ahead of next week’s earnings report. I’ll explain why in just a minute.
But first, let’s take a look at how BBBY has been performing of late.
Prior to this summer, BBBY had been one of the market’s strongest performing stocks. The retailer’s shares more than quadrupled in value from late November 2008 to mid-June 2012.
A phenomenal run to say the least.
However, the stock stumbled in June after the company missed revenue expectations and rising costs forced management to lower guidance. In fact, BBBY dropped nearly 17% on the news.
But you just can’t keep a good stock down.
BBBY stabilized in the $60 per share area throughout July and began moving higher again in August. Since then, the shares have gained more than 15%.
So, what’s the big trade?
Late yesterday afternoon, our proprietary detection system picked up the purchase of about 3,900 September 75 calls for $0.57 apiece.
Volume was more than two times open interest, indicating this was an opening trade. In other words, these traders are clearly short-term bullish on BBBY.
The question is… Why now?
As you probably already know, Bed Bath & Beyond is a premier home furnishings retailer, operating more than 1,150 stores in all 50 states, Puerto Rico, and Canada.
Stores carry an assortment of branded bed and bath accessories, kitchen textiles, and cooking supplies.
In addition to the company’s almost 990 Bed Bath & Beyond stores, the firm operates 70 Christmas Tree Shops, 45 Harmon Face Value units, and 54 buybuy BABY stores.
But all of a sudden, call buyers are coming out in droves?
I think Bed Bath & Beyond is poised for additional expansion after emerging from the housing and general economic downturn in relatively good shape.
While the home furnishing industry’s sales dropped 20% from 2007-09, BBBY bucked the trend. The company posted positive revenue growth and delivered solid returns on invested capital.
In addition, less discretionary items such as linens, towels, cookware, and small appliances offer resiliency against the slumping housing market. And established bridal, baby, and gift registry businesses are also a plus.
These ongoing trends will help growth moving forward.
Lastly, BBBY has a long history of using cash flow to augment shareholder value. It has repurchased more than $500 million of common shares in the first half of 2012 alone. And they just authorized an additional $2 billion buyback.
Not too shabby!
I think this is exactly what these options traders are betting on here.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
