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Option Trader Bets $5.1M Against Bed Bath & Beyond Ahead Of Earnings

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Option Trader Bets $5.1M Against Bed Bath & Beyond Ahead Of Earnings

Bed Bath & Beyond Inc. (NASDAQ: BBBY) shares are down 75.3% over the past year. At least one larger option trader is betting on more downside ahead in the next several weeks.

The Bed Bath & Beyond Trades

On Monday, Benzinga Pro subscribers received an option alert related to an unusually large Bed Bath & Beyond trade.

At 1:07 p.m., a trader bought 7,000 Bed Bath & Beyond put options with a $7.30 strike price expiring on May 15 at the ask price of $7.30. The trade represented a more than $5.1-million bearish bet.

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Why It’s Important For Bed Bath & Beyond 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 put purchase on Monday, it could certainly be an institutional hedge.

Bed Bath & Beyond Earnings Miss Coming?

The most obvious explanation for the large put purchase on Monday is that a deep-pocketed trader simply believes Bed Bath & Beyond is going to report some disappointing fourth-quarter earnings numbers on April 17.

Bed Bath & Beyond announced the closing of all its stores on March 22. On Monday, the company extended its store closures through May 2.

In addition to the store closures, the company announced it will pay 100% of all healthcare premiums for its furloughed employees and it is reducing executive salaries by 30%. Bed Bath and Beyond also said it has drawn down the remaining $236 million on its revolving credit facility and deferring $150 million in planned non-essential spending.

Analysts are expecting Bed Bath & Beyond to report holiday-quarter earnings per share of 21 cents on revenue of $3.08 billion, down 6.8% from a year ago.

Surprisingly, bullish sentiment among StockTwits messages mentioning Bed Bath & Beyond is up from just 24% on March 23 to 65.2% on Monday.

Benzinga’s Take

The large option trader may be betting more on disastrous guidance from Bed, Bath and Beyond than on bad holiday-quarter numbers given the store closures didn’t begin until the current quarter. The puts purchased have a break-even price of $3.70, suggesting at least 16.2% downside in the next six weeks.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

 

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