Bullish option buyers are tucking into Bed Bath & Beyond ahead of its quarterly report.
More than 5,800 February 62.50 calls traded in a strong buying pattern yesterday, 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 percent 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 shares rose 2.37 percent yesterday 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 yesterday 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.
—By CNBC Contributor Pete Najarian
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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com. Najarian has no positions in BBBY.