Bulls Look Beyond for Bed Bath Rally

Tickers in this article: BBBY
By Pete Najarian, co-founder of OptionMonster

NEW YORK -- Option buyers are tucking into Bed Bath & Beyond ahead of its quarterly report after Wednesday's close.

More than 5,800 February 62.50 calls traded in a strong buying pattern Tuesday, with prices rising from $1.54 to $1.95, according to OptionMonster's tracking systems. The volume was more than 3.5 times higher than the strike's open interest at the beginning of the day, indicating new activity.

The calls, which lock in the price where traders can buy the stock, are looking for shares to gain roughly 6.5% by expiration in mid-February. But if the stock is below the $62.50 strike price at that time, the calls will expire worthless.

Bed Bath's shares rose 2.37% Tuesday to close at $60.39, its session high, and ticked up to $60.50 in after-hours trading. A day earlier the stock broke above its 50-day moving average for the first time since mid-September.

The shares have gained despite a report by UBS that lowered its price target on Bed Bath to $64.50 from $71, citing uncertainty in consumer spending. Other home-product names, such as Williams-Sonoma and Pier 1 Imports, have reported better-than-expected numbers recently.

Total option volume in Bed Bath Tuesday was more than quadruple its daily average in the last month. Calls outnumbered puts by nearly 3 to 1, a reflection of the session's bullish sentiment.

Najarian has no positions in BBBY.