- Bed Bath and Beyond stock sparks bloodbath among retail investors as it crashes.
- BBBY stock falls to $10 after hours Thursday as Ryan Cohen RC Ventures sells BBBY stake .
- BBBY is also rumored to have hired a top bankruptcy lawyer.
renew: BBBY stock plunged 41% on a chaotic second day. Earlier this week, former booster Ryan Cohen and new meme stock star Jack Freeman both cashed in on their combined nearly 18% stake, and the rest of the retail crowd has decided to follow suit. At $10.85 an hour before the market opened on Friday, the company is now again worth less than $1 billion. News that Bed Bath & Beyond has hired a law firm known for its bankruptcy proceedings also hurt sentiment around BBBY. About 6,200 calls for the $20 expiring Aug. 26 contract have traded so far. The price of those call options plunged 89% overnight to $0.41 per share.
Bed Bath & Beyond ( BBBY) on Thursday abandoned RC Ventures’s sale of its all shares of the company. BBBY stock has reignited a retail trading frenzy this month with some jaw-dropping gains. Before this crash, BBBY stock was up more than 500% in August.
BBBY Stock News
There is a lot to digest here. The retail frenzy was reignited by the Fed’s so-called dovish turn, leading to a rally in risk assets and stocks. Retail is coming in like a tidal wave and it’s back to some old favorites, namely Bed Bath and Beyond . The frenzy was further exacerbated when RC Ventures Ryan Cohen bought some deep out of the money options, causing the good old gamma squeeze to be added to the more popular short squeeze Press the narrative. A gamma squeeze is the amount of underlying stock options a market maker must buy in order to hedge their options position.
The more the stock rises the more market makers must buy to remain hedged.
Now in turn, they will both sell their stocks. There was also an interesting little story this week about a 20-year-old college student who made a jaw-dropping gain from a BBBY deal. There’s also been a lot of discussion about whether the short-term rule applies to these sales. As far as I know, it doesn’t apply. The short-term rule basically states that any profits from transactions conducted by insiders or directors and/or holders of more than 10% will go to the company if completed within 6 months. WhenRC Ventures announced its 9.8% stake , and therefore below the 10% short-term rule threshold. Yes, it does grow based on share buybacks, but I don’t think that applies. I could be wrong, but this is my opinion. Also, a significant portion of the purchases are made in January and February, so the short-term rule applies outside the 6-month window.
Finally, as some have mentioned, the gains made won’t save Bed Bath & Beyond. Trade gains were approximately $68 million. BBBY needs more to survive. Its debt and liabilities approached $5 billion. $68 million is a drop in a sea of debt.
On this, Bloomberg reported Thursday that the story is further twisted. Restructuring and Bankruptcy Attorneys Kirkland & Ellis . Bloomberg Law recently stated, “Kirkland has been the busiest law firm in major Chapter 11 cases over the past few years, and 2020 was the last busy year for bankruptcy lawyers, with pre-filing fees for such cases exceeding $200 million “.
So, this is not good news for BBBY holders. BBBY Stock Forecast
Unfortunately, this was flagged when the intent to sell the documents was made public. In my opinion, such a notice would not be filed unless you had some conviction, so it worked. The odd reaction of BBBY stock up 500% despite poor earnings should also be a sign.
Yes, this is in 2020 with AMC and GME worked well together, but unfortunately this application of intent was a sign of an exit and many retail traders did not follow up and they are now being hit hard. Now, it looks worse to me.
BBBY stock falls to $5 after recent earnings . Now it’s even worse, with major shareholders selling off their shares. Also got less attention, but the CFO also sold a decent amount, 55,013 shares @ $25.52. To be fair, it’s too tempting not to take advantage of BBBY’s sky-high valuation levels. So earnings are bad, a major shareholder looking for a board seat and change action has pulled out, and the company has hired a lawyer known for its debt restructuring. BBBY’s debt is trading at 50 cents, according to Bloomberg. The mood is bad right now. So it looks like a return to $5 and below is likely. Debt restructuring could mean some form of dilution, financing, or even worse, Chapter 11.
BBBY Technically, the stock is also a mess. The gap down to $8.33 is sure to be filled, from there at least $5 provides some volume-based support. It’s hard to find anything positive here, but that doesn’t mean another squeeze is likely. Unlikely, because repetition tricks are harder to do, especially with the world watching, and there’s a lot of stuff that’s still stuck at a higher level. But technically above $17, there is less resistance based on volume.
*The author is short BBBY and long $23 put option.
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