It’s Friday, the last day of the workweek, but more importantly, Game 1 of the World Series is tonight in what should be an epic battle between the Yankees and the Dodgers. I can’t wait.
Anyway, the University of Michigan's U.S. Consumer Sentiment Index is on tap for investors this morning (I’m writing this before the open). Economists believe it will drop from 70.1 in September to 68.9 in October. While up considerably from an all-time low of 50.0 in June 2022, it’s well down from its 10-year high of 101.0 points in February 2020, right before the pandemic took off.
Beyond Inc.'s (BYON) unusual options activity in yesterday’s options trading stood out. The beleaguered e-commerce retailer is trying to make a comeback. Yesterday’s Q3 2024 results didn’t help. Its stock lost nearly 30% in the process.
However, if you’re an aggressive investor, its unusual options activity presented some intriguing long-straddle possibilities.
Have an excellent weekend!
The Unusual Options Activity
Before explaining why anyone would be crazy enough to bet on BYON stock, let me examine Thursday's unusual options activity.
Beyond had six unusually active options yesterday—four calls and two puts—with the Nov. 15 $5 put generating a volume of 7,343, 41.72x the open interest, making it the eighth-busiest Vol/OI ratio out of 1,047.
Its options volume on the day was 49,239, 5.7x the 30-day average. The volume was the second-highest so far in 2024; only July 12 (52,825) was higher.
So, it’s fair to say investors were more curious than usual about Beyond.
Here’s Why Bearish Investors Were Biting
Okay, the first camp consisted of investors looking to profit from the stock’s drive to $0. It’s down 82% from its 52-week high of $37.10 in late March. The second group consisted of aggressive investors who sniffed a bargain.
Let’s consider both types of investors.
If you’re in the first camp, buying Nov. 15 $5 puts $1.69 out of the money at the close would have cost you $20 per 100 shares or about 4% of the strike price. You can’t even get a beer and hamburger for that these days.
The put expires in 23 days. As I write this, it’s down another 25 cents in the pre-market. Who knows how low it can go? I know that if it falls to $5 in the next 20 days and you sell the put, you’ll double your money.
If you’re a bear--surprisingly few are, with four analysts rating it a Buy, seven at Hold, and no Sell recommendations (3.64 out of 5)--this put has got to be very enticing, not to mention relatively inexpensive.
I completely get the bearish take.
Here’s Why Bullish Investors Were Biting
However, there are several reasons the analysts aren’t entirely pessimistic about the stock for several reasons.
1. In October 2023, the company appointed Marcus Lemonis to its board. Lemonis is the CEO and controlling shareholder of Camping World (CWH), the largest retailer of RVs in America. It’s only a matter of time before that stock returns to around $50, where it traded in 2021.
Lemonis has become a crucial part of Beyond’s turnaround, first being named Co-Chair of the board in December 2023, and then becoming Executive Chairman in February. In his role, Lemonis’s only Compensation will be performance-based stock options that are only exercisable at prices between $45 and $60, well above where BYON stock currently trades.
He has plenty to do if he wants to reap the benefits of his time as Executive Chair. I like his odds.
2. The company is continuing to transform its business. While its Q3 2024 results included a 16.6% decrease in revenue and an adjusted EBITDA loss of $32 million, it is making progress on this front.
“In our core business, we have identified four key areas of improvement: 1) marketing efficiency, 2) sales growth, 3) margin, and 4) expense management,” Beyond President Dave Nielsen stated in its press release.
“As we continue to transform and build out our model, we intend to monetize data through our enhanced CRM and database capabilities, stand up a global loyalty program across both our owned and partnered brands, and leverage our IP through a variety of global licensing partnerships.”
Put simply, it will utilize its data more effectively to generate more significant revenue and profits from its various brands.
3. Among the many negative metrics from Beyond’s third-quarter results, two positive figures stand out—its active customers increased 21% year over year to 6.0 million, and the average order was $199 during the quarter, 3.4% higher than a year ago.
Clearly, it will take a lot of work to get the numbers back to pre-pandemic levels, but it’s putting everything on the table to gain traction with its active customers.
4. In October, it made two announcements that could dramatically change the company’s trajectory.
First, on Oct. 15, it announced that it was partnering with The Container Store to launch spaces within its retail locations to market co-branded Bed Bath & Beyond/The Container Store kitchen, bath and bedroom products, providing both brands with a winning solution to their sales woes.
In addition, Beyond is investing $40 million in The Container Store Series B preferred stock, which is convertible into common stock. If converted, Beyond would hold 40% of the equity. This could end up being a bargain. Stay tuned.
Second, it announced on Oct. 21 that it was partnering with Kirkland’s, which will open neighborhood Bed Bath & Beyond locations (up to 15,000 square feet) nationwide. In return, Beyond will provide Kirkland’s with $25 million in loans and equity as part of the seven-year collaboration.
Beyond will receive various fees from Kirkland based on sales of these stores and products. This isn’t something that will deliver for Beyond in the near term, but it could be 3-4 years down the road. Ultimately, it could end up owning 20% or more of Kirkland’s.
5. There are many ifs involved in the above, but if you are an aggressive investor, I can also see the bullish case.
The Long Straddle to Make
Let’s get back to Beyond’s six unusually active options from yesterday.
Barchart defines the long straddle as follows:
“The long straddle strategy anticipates volatility to rise and the underlying security to move significantly in either direction. The long straddle option strategy involves buying a call and a put option at identical strike prices. Maximum loss is the premium paid for the long call and long put (Net Debit). Maximum profit is unlimited, as the security can theoretically rise indefinitely or go to zero.”
So, among the six, we need a put and call with the same strike price. There is a Nov. 15 $5 put and a Jan. 17/2025 $5 call.
To buy both a $5 put and call expiring on the same day, the former would cost a maximum of $2.10. The latter would cost $4.75 for the later-dated long straddle expiring on Jan. 17.
The November long straddle has a 40.3% profit probability, double the January play. November’s breakeven share price is $7.10, 6.1% higher than yesterday’s $6.69 close. The January breakeven is $9.75, 45.7% higher.
So, even though the January long straddle gives you 4x as many days for the bet to profitably play out, the November play is cheaper.
When in doubt of direction, a lower maximum loss makes sense.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
