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Options Traders Aren't Buying Bed Bath & Beyond's Bull Gap

Karee Venema

Bed Bath & Beyond Inc. (NASDAQ:BBBY) stock is booming today, up 17.4% to trade at $11.67. This comes in reaction to news the home furnishings retailer tapped Target's (TGT) Chief Merchandising Officer Mark Tritton as its new CEO. An upgrade to "outperform" from "market perform" and price-target hike to $16 from $14 at Telsey Advisory -- representing expected upside of 60% to last night's close -- is only stoking the bullish flames, with the brokerage firm saying this announcement removes an "overhang" for BBBY.

Most analysts remain skeptical of the retail stock, with 12 of 15 calling it a "hold" or "strong sell" prior to today. Meanwhile, the average 12-month price target of $13.17 is an 11% premium to BBBY's current perch. This leaves the door open for more bull notes to come down the pike, should the security continue to race up the charts.

Short sellers are likely being caught off guard during today's surge, too, and a round of covering could strengthen buying power for Bed Bath & Beyond stock. The 65.2 million shares controlled by shorts represent more than half of BBBY's available float, or nearly 10 times the average daily pace of trading.

Early options traders today appear to be bracing for a quick pullback, though. The 34,000 options traded so far has already surpassed BBBY's average daily volume of 26,000 contracts, and the weekly 10/11 12-strike put is most active. It looks like new positions are being purchased here for a volume-weighted average price of $0.21. In this case, breakeven for the put buyers at the close tomorrow, Oct. 11, is $11.79 (strike less premium paid).

Looking closer at the charts, BBBY stock is up almost 60% from its nearly 22-year low of $7.31 from Aug. 15. The shares are now pacing toward their biggest one-day percentage gain since March 26, when they surged 22%, and their first close above their 120-day moving average since mid-May.