BBBY – Bed Bath & Beyond Inc. – Shares of the home furnishings retailer are down 4.15% to $39.74 in morning trading, recovering slightly since the start of the session when the stock slumped 5.7% to an intraday low of $39.10. Positive news that BBBY reported better-than-expected first-quarter profits of $0.52 per share versus average analyst estimates of $0.48 a share was overshadowed by a weaker-than-expected second-quarter forecast from the company. Bed Bath & Beyond said it expects to earn between $0.59 and $0.63 per share in the second quarter, which underwhelmed the consensus view for net income of $0.64 a share. One disappointed options investor has apparently had enough and today opted to throw in the towel on the retailer by unraveling a previously established debit call spread in the July contract. It looks like the trader initially purchased 1,000 calls at the July $42 strike for a premium of $1.25 each, and sold the same number of calls at the higher July $45 strike at a premium of $0.30 apiece. The net cost of the original transaction was $0.95 per contract. The subsequent slide in the price of the underlying shares has dragged premium on the calls sharply lower in the days elapsed since the spread was purchased on June 22, 2010, when BBBY was trading at a volume-weighted average price of $40.98. The options investor ditched the spread today by selling the July $42 strike calls for a premium of $0.49 apiece, and buying the July $45 strike calls for a premium of $0.09 each. By closing out the position today the investor suffers a net loss of $0.55 per contract. The overall reading of options implied volatility on Bed Bath & Beyond is lower by 12.8% to 35.24% following earnings.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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