Pet supply

Bearish options blow up soft stocks ahead of earnings

Chewy prepares to report results after markets close tonight

Online pet supply retailer Chewy Inc. (NYSE: CHWY) will release its fiscal fourth quarter results after tonight’s close, and option bears are revving their engines ahead of the event. So far, 18,000 put options have been traded, three times the intraday average, against 13,000 calls. The most popular contract is the June 25 put, followed by the 6/3 27-strike weekly call.

This penchant for bearish bets is nothing new for CHWY, however. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX), the stocks have a 50-day put/call volume ratio of 1.00, which is in the 72nd percentile of its annual range. In other words, options traders are buying long put options at a faster rate than usual.

Schaeffer’s Open Put/Call Interest Ratio (SOIR) of 1.20 echoes this, as it sits above 74% of last year’s readings. In other words, short-term options traders have rarely been more put-oriented.

Short sellers, on the other hand, hit exits en masse, down 20% over the past two reporting periods. However, the 10.42 million shares sold short represent 23.5% of the stock’s free float, or more than four days of pent-up buying power.

CHWY has a history of post-profit losses, which could partly explain this bearish trend among options traders. Over the past two years, all but one of its overnight returns have been negative, which includes a Down 16.1% when last reported. CHWY has averaged a 7.8% post-earnings move over this period, regardless of direction, which is well below the 24.3% move the options pits are currently pricing.

CHWY was last seen down 5% at $23.56, as it retraces towards its two-year low from May 24 at $22.22. As stocks briefly topped their 20-day moving average at the end of last week, this trendline is once again acting as a pressure zone on the charts. For the year, CHWY lost 60%.

chwy june 1st