Home-goods retailer Bed Bath & Beyond (BBBY) will be fighting an uphill battle when it releases its second-quarter earnings report after the close tomorrow afternoon. Major retailers have struggled this quarter — with Walmart’s (WMT) lowered guidance setting a negative tone early in earnings season — and Bed Bath & Beyond also faces a wealth of negativity from Wall Street.

That said, this wealth of bearish sentiment could work in favor of BBBY stock, potentially favoring those investors willing to take a risk.

For the record, Bed Bath & Beyond earnings are expected to come in at $1.14 per share, down 2 cents from year-ago second-quarter results of $1.16 per share. Revenue, meanwhile, is seen rising 2.5% to $2.89 billion.

There are stirrings on the Street that BBBY earnings could top expectations. Specifically, EarningsWhisper.com reports that Bed Bath & Beyond’s second-quarter whisper number arrives a penny higher at $1.15 per share.

These whisper represent the sum total bullish sentiment for BBBY stock, however.

Thomson/First Call data reveals that 20 of the 26 analysts following the shares rate them a “hold” or worse. Furthermore, the 12-month consensus price target of $64.50 represents a miniscule 1% premium to Friday’s close at $63.85.

Elsewhere, short interest is an evolving story for BBBY. The number of BBBY shares sold short declined by nearly 8% during the most recent reporting period, but totals nearly 24 million shares. As a result, some 12.4% of BBBY stock’s total float remains sold short, providing ample fuel for a potential short-covering rally.

If these short sellers are nervous about tomorrow’s quarterly report, it isn’t showing up in BBBY’s options activity. In fact, short-term options activity is quite bearish, with the put/call ratio for the front two months arriving at 1.14. This reading climbs sharply to 1.7 when we narrow the field down to just the weekly September series of options.

Click to Enlarge Technically speaking, BBBY stock is in the midst of a rebound from its annual lows near $55 in July… or at least it was until it ran into resistance last week at its declining 200-day moving average.

Still, BBBY stock has some momentum left in the tank, even as it pulls back to support from its rising 50-day moving average. With the shares backing away from a potentially overbought condition, a positive report tomorrow night could send the stock back for a challenge of its 200-day trendline.

Traders looking to position themselves ahead of BBBY earnings will want to know that weekly September options are pricing in a potential post-earnings move of about 6%. This places the upper bound near $67.84, while the lower bound lies near $60.16. For comparison, BBBY stock has averaged a single-session move of about 5.3% following the company’s past four quarterly reports.

Options Trade on BBBY Stock

With the bar set so low, all Bed Bath & Beyond has to do is meet expectations and provide in-line guidance, and BBBY stock should react positively. As such, for those willing to take a risk, a contrarian bull call spread has good chance of turning a profit.

At last check, the Oct $62.50/$65 bull call spread was offered at $1.40, or $140 per pair of contracts. Breakeven lies at $63.90, while a maximum profit of $1.10, or $110 per pair of contracts, is possible if BBBY stock closes at or above $65 when October options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.