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How to Prepare for Bed Bath & Beyond Earnings in a Turbulent Market

Options traders pile into BBBY puts; should you follow suit?


Home goods retailer Bed Bath & Beyond (NASDAQ:BBBY) will step into the earnings confessional after the close of trading Wednesday afternoon. Analysts are projecting a first-quarter profit of 84 cents per share — a target that has been revised higher from 83 cents per share three months ago. Revenue is expected to rise 6.6% to $2.25 billion from $2.11 billion a year earlier.

The company has a track record of solid fundamental growth, with earnings rising more than 20% year-over-year in each of the prior three reporting periods. With analysts potentially keying off this impressive backdrop, BBBY’s whisper number arrives considerably higher than the consensus at 91 cents per share.

Taking a closer look at the brokerage community reveals that there still is room for improvement, though. For instance, 13 of the 28 analysts following BBBY still rate the shares a “hold” or worse. From a contrarian standpoint, this configuration leaves room for potential upgrades should Bed Bath & Beyond post strong quarterly results.

Judging by yesterday’s activity, options traders do not hold BBBY in the same high regard. Overall, 9,880 puts and 7,580 calls changed hands on BBBY on Tuesday, resulting in a bearishly skewed single-session put/call volume ratio of 1.3. Looking at just the June weekly series of options, which expire this Friday, the put/call volume ratio came in even higher at 1.36.

Traders might be speculating on a potential drop top for BBBY shares. The stock has rallied more than 27% so far this year, but BBBY once again is staring up at the $75 level after being rejected in the region near the end of May. There is support below the security, but it doesn’t emerge until the $70 region, which is home to BBBY’s rising 50-day moving average.

For those looking for a pure earnings play, a BBBY weekly June 75 straddle was offered yesterday at $4.47, or $447 per pair of contracts, placing breakeven at $79.47 and $70.53 — a move of roughly 6% in either direction.

Alternately, those looking to follow the rest of the options crowd, a BBBY June 70/75 bear put spread was offered at $1.79, or $179 per pair of contracts, at the close of trading on Tuesday. Breakeven lies at $73.21, while a maximum profit of $8.21, or $821 per pair of contracts, is possible if BBBY closes at or below $70 when June options expire on Friday.

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

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