Options Tuesday: A Speculative Trade with BBBY
One of my favorite things about trading is taking a reasonable amount of risk on a speculative-type trade and having it pay off… big time.
The key to unlocking big gains is lining up an upcoming catalyst with an options trade that has the right reward-to-risk profile. Some pros call these kinds of trades asymmetric risk trades, but I like to call them “multiplier trades” because they’re trades where the upside is 2x, 3x, 4x, or more than the downside.
Back in January, shares of Bed Bath & Beyond Inc (NasdaqGS:BBBY) jumped 203.67% over 13 sessions after the company reported better than expected earnings. That’s a great move on its own – but savvy traders could have targeted BBBY options that were only one strike out-of-the-money (OTM), with 15 days until expiration, which resulted in a 753% gain over nine sessions.
How’s that for a multiplier trade!
The gain ended up being more the 7x the downside.
That’s the kind of trade I’ll make all day, every day!
This week, I see a multiplier trade opportunity, not surprisingly, in BBBY as it gets ready to report fiscal Q4/2020 results on Wednesday, April 14.
A lot of analysts are negative on BBBY and aren’t expecting their earnings to awe anybody. I disagree. One reason is firsthand experience at BBBY stores. I recently moved into a brand-new place and had to set it up with everything – literally everything – a home needs. And I shopped at three different Bed Bath & Beyonds around my city. They were full of shoppers every time I went in. Long lines were commonplace at the registers. The stores I shopped at all had at least four registers open at a time. And everyone had to wait.
That’s what I call old-fashioned Peter Lynch homework. I said to myself online, a couple of times, “this company’s stock is going to pop when their earnings come out.”
Besides me, stay-at-home and work-from-home forces have been feeding BBBY sales since last spring. I’m bullish on the earnings, and…
The collective short positioning against floating shares is a whopping 27.58%, which is pretty darn high. That’s put the stock on Reddit traders’ radar, and that could cause a huge spike to the upside as the retail crowd piles into the trade.
This week I want to target Bed Bath and Beyond Inc, specifically the
BBBY April 30, 2021 $30 Call (BBBY210430C00030000) options. These options are one strike out-of-the-money and they have 17 days until expiration.
Yes, you can lose on this trade, yes it could be 100% of the capital you put up – but the upside is measured in multiples of 100%, which means there’s easily a 2x or 3x reward to risk.
The key to this kind of speculative trade is risk management.
Don’t bet the farm!
Only allocate an amount of capital you can afford to lose. This kind of trade is all about the numbers. If you put on two or three of these trades a week, and you’re right 50% of the time you’ll end coming out ahead, in the end.
Are there any other stocks you think we should buy into in the coming weeks? Any options trades caught your eye? I want to know what you are seeing in the markets.
Like I said yesterday, I’ve got a new segment going I’m calling BS.H Day – that’s BS as in Buy/Sell and .H for Hold. Send me the stocks you’re trading, investing in, or curious about and I’ll tell you, in my opinion, whether to buy, sell, or hold that stock.
Reach out to me at my new email firstname.lastname@example.org. I look forward to hearing from you.
Until next time,