Profit From Bed Bath & Beyond’s Post-Earnings Drop

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This morning, I am recommending a bearish trade on Bed Bath & Beyond, Inc. (NASDAQ:BBBY).

Every sector has been rising in this bullish market, and retail is no exception. If you look at the chart below, you can see the SPDR S&P Retail ETF (NYSEARCA:XRT) has risen to resistance at around $43. It may even push above that level if the bullishness continues.

Daily Chart of the SPDR S&P Retail ETF (XRT) — Chart Source: TradingView

But while the rest of the retail sector pushes higher, BBBY is dropping to new lows. I don’t see that changing anytime soon, and now is a good time to take advantage with a bearish put option.

Another Mixed Earnings Report

Last week, BBBY reported Non-GAAP earnings per share (EPS) of $0.12. That beat the consensus estimate, making this third time in a row BBBY beat EPS expectations. However Non-GAAP EPS were actually down from $0.38 this time last year.

And in its report, BBBY’s net sales fell by 7% from this time last year, missing consensus estimates. According to Zacks, BBBY missed net sales expectations for the fourth time in a row.

BBBY is supposedly going to benefit from the trade truce between the U.S. and China, but I don’t think that will be enough to keep this stock from dropping further in the short term.

Will Support at $10.50 Hold?

BBBY hasn’t been this low since December of 2018. Things are considerably better for the market now, but BBBY still set a new low. I’m not convinced support at the $10.50 level will hold after this mixed earnings report.

Daily Chart of Bed Bath & Beyond, Inc. (BBBY) — Chart Source: TradingView

Even if BBBY does benefit from the trade truce, we won’t see that effect right away. Instead, the most relevant story for this retailer is its poor earnings performance, which is why I’m recommending a bearish put option this morning.

Buy to open the Bed Bath & Beyond Inc. (BBBY) Nov. 15th $10 Puts (BBBY191115P00010000) at $0.90 or lower.

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