$BGS (B&G Foods Inc) has been making the rounds recently. It popped up on my radar and after some research I decided today to buy 20 leap contracts (January 2022) for the $50 strike price. The reason for this is below.
Thesis: Buying $BGS
$BGS should not be valued where it is. It is highly overvalued and its recent earnings didn’t hit expectations. As such the DCF models began to price it lower in early May of 2021.
$BGS should be valued in the high 20’s but it is currently trading in the low $30s. It is my belief that this price discrepancy is caused by massive retail interest in the stock due to its short ratio to public float being extremely high (36%).
So why do I recommend buying it then? Well the upside gain.
Right now you can get an option call contract at the strike price of $50 that expires in January of next year for around $40 a contract ($0.40). That is a $40 option that expires in 220 days from now with low IV on a heavily shorted stock.
$BGS has shown that is is capable of running up IV incredibly fast. Further, it has a following on WSB. This and I believe that retail traders will hunt stocks with short positions for the near future and will form mark-subconscious pairs trade opportunities across multiple high short asset classes.
So I took out the January 2022 calls at the $50 strike price not because I think the underlying asset can hit that price but rather because I am betting that at some point over the next 220 days $BGS will have a run up that will drastically increase IV. If this is the case you can expect to get a decent sized return out of nowhere one day.
Best of luck!