Upgrade, Price-Target Hike Pushes Chewy Stock Higher

CHWY added more than 63% during the last nine months

Digital Content Manager
Jan 27, 2023 at 11:13 AM
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Pet supply e-tailer Chewy Inc (NYSE:CHWY) earned an upgrade to "outperform" from "neutral" at Wedbush earlier, as well as an impressive price-target hike to $55 from $35. The brokerage noted the company's scope for higher net customer additions and margin improvement, as profit per customer doubles the pace of acquisition costs. Plus, Chewy could benefit from a return to outsized e-commerce channel growth. 

Last seen up 6.7% to trade at $46.17, Chewy stock is again attempting to overcome resistance from the $48 level, which turned down the equity's mid-December rally. The shares have added 61.3% during the last nine months, and now sport a 9.7% year-over-year lead.

While short interest has already started to dwindle, the 23.09 million shares sold short still make up a whopping 25.4% of the equity's available float, or over one week's worth of pent-up buying power. Should shorts continue to hit the exits, it could push the stock even higher.

Options traders are overwhelmingly bullish on CHWY. This is per the stock's 10-day call/put volume ratio of 2.42 over at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 99th percentile of readings from the past 12 months. In other words, calls are getting picked up at a much quicker-than-usual clip.

Drilling down to today's options activity, 26,000 calls and 10,000 puts have crossed the tape, or three times the intraday average. Most popular is the weekly 2/3 40.50-strike call, followed by the 46-strike put in that series, with positions currently being opened at both.

Now looks like a good time to speculate on Chewy stock's next move with options. The security's Schaeffer's Volatility Index (SVI) of 59% sits in the 1st percentile of readings from the past year, suggesting options traders are pricing in low volatility expectations right now.


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