"We do believe there is currently a short squeeze playing out in BBBY," said Evan Niu, analyst at Ortex, adding that 45% of the firm's free float was shorted.

A jump in the price of shorted shares can force bearish investors to buy back shares at a higher price to limit losses. The rush of demand from short sellers looking to exit bets pushes rising stock prices even higher, resulting in a short squeeze.

The stock was last up at $11.33, a near three-month high, looking to extend its gains for the ninth straight session. If gains hold, Bed Bath & Beyond's market value is set to double to over $900 million since the rally began on July 27. Before the bell on Tuesday, August 9, the stock was flat, up just 0.70%.

Bed Bath & Beyond was the most bought stock among retail brokerage Fidelity's customers with more than three buy orders for every sell order. It was also the most actively traded stock across U.S. exchanges with 54.5 million shares changing hands by 10:18 a.m. ET (1418 GMT).

"These types of extremely large moves are outliers but they do happen time and time again," said Adam Sarhan, chief executive officer at 50 Park Investments.

"But most of the time these exaggerated moves are short-lived and the stocks tend to go back down."

The company in June replaced Chief Executive Officer Mark Tritton as part of a management shake-up as it reported a 25% slump in first-quarter net sales.

GameStop and AMC Entertainment, which were at the heart of a retail trading frenzy in early 2021, jumped 8.8% and 13.8%, respectively, rising for at least the sixth straight session.