Can Bed Bath stage a comeback?

Bed Bath & Beyond got hammered on a poor earnings report, but now the bulls are back.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 4,400 January 60 calls for $2.58 and the sale of an equal number of January 52.50 puts for $2.01. Volume was more than twice the previous open interest in each strike, which indicates that new positions were initiated.

It cost $0.57 to implement the strategy, which is similar to owning shares in the home-goods retailer. The main difference is that it's much cheaper initially and will gradually lose its correlation to the underlying stock as time passes. (See our Education section for more on long calls and short puts .)

BBBY is up 0.44 percent to $56.95 in afternoon trading. It fell 7 percent yesterday after profit and sales missed estimates as management issued weak guidance because of mounting competition from online vendors.

Nonetheless, the stock is at the lower end of its long-term trading range and bounced at $54 early last year. That could make today's investor comfortable writing puts below that level, even though he or she would be on the hook to buy shares if they fall under $52.50.

The trader might also be trying to follow the example of other retailers such as Abercrombie & Fitch, Dick's Sporting Goods, and Best Buy, which have also fought back from major selloffs.

Overall option volume in BBBY is slightly above average so far today, with the bullish combination trade accounting for half the total.

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