Options Corner: Chewy Stock Could Be Unreasonably Mispriced Following An Extended Downturn - Chewy (NYSE:CHWY)

Core Viewpoint - Chewy Inc (NYSE:CHWY) is a significant player in the pet care market, reflecting the strong emotional bond Americans have with their pets, which is influencing the broader care ecosystem [1] Company Performance - CHWY stock has experienced a decline of 13% over the past year and a substantial drop of 70% over the last five years, primarily due to the normalization following the COVID-19 pandemic [2] - Despite the stock's poor performance, there is speculation that the current low valuation may present an opportunity for traders [4] Market Sentiment - The market has already priced in the strong fundamental narrative surrounding pet ownership, indicating that current stock prices reflect existing expectations rather than potential changes [3] - The perception of CHWY as a discount stock could lead to a future increase in share price, as the core business proposition remains intact despite external economic pressures [4] Volatility and Pricing Models - The future performance of CHWY stock is influenced by its current state, aligning with the Markov property, which suggests that past performance impacts future outcomes [5][7] - Current market conditions have led to a downward trend in CHWY stock, with projections indicating a potential price range of $28 to $45 over the next 10 weeks, peaking around $38 [12] Trading Strategy - A contrarian trading strategy is suggested, focusing on a bull call spread option with a strike price of $37.50, which could yield a maximum payout of nearly 372% if the stock rises above this level by February 20, 2026 [13][15] - The probability of CHWY reaching the $37.50 mark is considered low under traditional models, but using the Markov property suggests a higher likelihood of this outcome [16][17]