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Bed Bath & Beyond continued to surge on Thursday, rising for a fourth day and closing at the highest level since late October, after the company’s bankruptcy warning reignited interest from retail traders.Shares in the home-goods retailer climbed 50 per cent, adding to 166 per cent gains from the previous three sessions. Other so-called meme stocks also added to gains on Thursday after jumping on Wednesday. Carvana rallied 46 per cent in the biggest advance on record while meme-stock poster-children AMC Entertainment Holdings and GameStop had more modest gains.Shares in the home-goods retailer climbed 50 per cent, adding to 166 per cent gains from the previous three sessions.Credit:BloombergRetail traders have helped drive the latest surge, funnelling millions into Bed Bath & Beyond and pumping their bets on social media websites and chatrooms. These investors snapped up $US7.3 million ($10.5 million) of Bed Bath & Beyond stock on Wednesday to more than double their net purchases since the markets closed on January 4, Vanda Research data show.That buying continued on Thursday with the stock seeing the second-most buy orders on Fidelity’s platform, only lagging Tesla. Touts across platforms such as Reddit’s WallStreetBets and Stocktwits have accelerated in recent days alongside retail buying.Volatility in Bed Bath & Beyond has soared since the company warned last week it may need to file for bankruptcy. The stock’s 10-day volatility hit the highest level in at least five years, surging past levels seen when meme-stock mania captivated investors in early 2021.Back then, individual investors teamed up on social media with the goal of punishing short sellers while making a killing for themselves. That fuelled eye-popping rallies in stocks such as Bed Bath & Beyond and GameStop. With Bed Bath & Beyond short interest rising to about 53 per cent from 47 per cent one month ago, according to data from analytics firm S3 Partners, there could be a further squeeze on the horizon.“If bankruptcy is not in Bed Bath & Beyond’s future, its rallying stock price will force a massive short squeeze and short sellers will rush to the doors and buy-to-cover in order to retain some of the mark-to-market profits they earned in 2022,” Ihor Dusaniwsky, head of predictive analytics at S3 Partners, wrote in a research note.Bed Bath & Beyond tumbled 83 per cent in 2022 in its worst year on record, according to data compiled by Bloomberg going back to 1993.The retailer has the second-largest short interest as a percentage of float for stocks with over $US10 million of short interest, behind only Silvergate Capital, Dusaniwsky said. But one key difference between Bed Bath & Beyond and other crowded shorts is the increasing likelihood of a bankruptcy filing.“If the threat of bankruptcy becomes more of a certainty, the prospect of a Bed Bath & Beyond short squeeze becomes less and less, we can expect minimal short covering as short sellers wait for a $0 stock price,” he wrote.Bed Bath & Beyond is speaking with potential lenders that would finance the company during bankruptcy proceedings. Traders appeared unfazed by the report, pushing shares higher by about 6 per cent in late trading.Despite the recent rally, Bed Bath & Beyond remains down about 90 per cent from a peak of $US52.89 during the meme stock frenzy about two years ago.