Author:
Ihor Dusaniwsky
Managing Director of Predictive Analytics, S3 Partners
Matthew Unterman
Director of Predictive Analytics, S3 Partners
Bed Bath & Beyond Inc (BBBY US) filed for Chapter 11 bankruptcy this weekend and is “winding down its operations” and continues to close stores across the country. Along with BBBY closing its retail doors, short sellers are beginning to close some very profitable trades in the stock.
BBBY short interest is $18.8 million, 63.97 million shares shorted, 15.06% SI % Float. Short side traders had rushed into this stock with shares shorted hitting a high of 84.6 million shares shorted on March 9th. Total shares shorted has declined by 20.6 million shares since then with most of the short covering executed recently. There have been 16.5 million shares covered over the last thirty days, a 21% decrease in total shares shorted. Traders are beginning to trim their exposure and starting to realize some of their mark-to-market profits.
BBBY short sellers are up $6.6 million on today’s -35% decrease in BBBY’s stock price, bringing April month-to-date mark-to-market profits to $15.8 million and year-to-date mark-to-market profits to $144.6 million. Shorting BBBY has been a long-term profitable trade with shorts up $1.26 billion in mark-to-market profits since its high of $52.89 on January 27, 2021 and up +$763 million in mark-to-market profits since its more recent high of $23.08 on August 17, 2022.
We should expect some short-term support to BBBY’s stock price as more short sellers trim or close their positions in an effort to realize their mark-to-market profits. Short traders will be providing liquidity to long shareholders as buy-to-covers provide a more tradable market and partially offset long-selling pressure.
Many traders look to exit bankruptcy names and leave some “change on the table” in order to escape the trade execution and trade settlement risk that usually occurs when trading is limited or suspended during the bankruptcy proceedings. The last thing a short seller wants is not being able to buy-cover and be forced to pay stock borrowing costs in a position they cannot close out until the bankruptcy proceedings are finalized.
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