(Reuters) - Bed Bath & Beyond Inc (NASDAQ:BBBY) shares dropped 12.5% on Thursday after billionaire investor Ryan Cohen disclosed plans to sell his entire stake in the struggling retailer, following a stunning rally in the meme stock this month.

Cohen's investment vehicle RC Ventures intends to sell 9.45 million shares, a filing late on Wednesday showed. The second largest investor in the firm also proposed a sale of its January call options with strike prices between $60 and $80.

The disclosure of those bullish bets had sparked chatter among retail investors, driving record trading in the stock on Tuesday.

Shares were last trading at $19 before the bell, having hit $30 on Wednesday and rising nearly 360% this month.

"The frenzy currently surrounding Bed Bath and Beyond could turn into more of a nightmare for speculators who piled into the stock in recent days to emulate meme stock influencers," said Susannah Streeter, analyst at Hargreaves Lansdown.

A rebound in the broader stock market has revived speculative options trading in single stocks among individual investors after volatile markets turned investors away from risky bets earlier this year.

So far in August, the sharp run up in Bed Bath & Beyond shares burnt more than a $600-million hole in the pockets of those that had bet against the stock, analytics firm S3 Partners said on Wednesday.

However, short interest has increased to 55% of the company's free float as bearish investors managed to find attractive entry points.

The company's ticker was trending high on investor-focused social media platform, stocktwits.com.

The activist investor Cohen, who is also the chairman of GameStop (NYSE:GME), could not be reached for a comment.