Chewy: Turning Growth Into Income

Trade Thesis for Chewy Inc. (CHWY):

  • The stock is down ~26% from its recent peak.
  • This added volatility creates a nice opportunity for cash-secured puts.
  • The best way to learn and master the Triple Income Wheel strategy is by repetition.
  • Strike Zone is $68.00 - $77.00

If you have ever experienced going to a pet store to buy a 50 pound bag of dog food, you might already be one of Chewy's 19.8 million active customers...and you certainly understand their value proposition.

Chewy is the "Amazon" (AMZN) of pet products, delivering food, treats, accessories, healthcare, and prescriptions directly to your door.

The company reports earnings on Wednesday (today) after the bell and expectations continue to be high.

All that said, we expect volatility to remain as the company balances it's lofty valuation with it's customer, earnings and cash flow growth.

We are maintaining a small position in the stock for the long-term and plan to accumulate more shares on future dips through selling cash-secured puts. We also plan to opportunistically sell covered calls on our stock position

Trade Analysis (Click the video below)

Cash-Secured Put Analysis

Risk/Reward Analysis

Based on your personal risk tolerance, consider the following cash-secured put options with various risk/reward profiles

Aggressive Portfolio

(target monthly yield = 1.5%-3.0%)

CHWY Oct 15th $80.00 Put

Price (Premium):  ~$2.98

Delta:  27

AMY%:  2.6%

MoS %:  9.2%

Base Portfolio

(target monthly yield = 1.0%-1.5%)

CHWY Oct 15th $75.00 Put

Price (Premium):  ~$1.75

Delta:  18

AMY%:  1.6%

MoS %:  14.9%

Conservative Portfolio

(target monthly yield = 0.5%-1.0%)

CHWY Oct 15th $65.00 Put

Price (Premium):  ~$0.55

Delta:  6

AMY%:  0.6%

MoS %:  26.2%

AMY % = Average Monthly Yield % / MoS % = Margin-of-Safety %

Covered Call Analysis

DISCLAIMER: Parsimony Investment Research and/or it's affiliates may or may not have a position in the stocks and/or options mentioned in this post at the time of publication. The information contained within this post is for informational and educational purposes only and it is not intended as a recommendation of the securities highlighted or any particular investment strategy; nor should it be considered a solicitation to buy or sell any security. The strategies and securities mentioned in this post may not be suitable for all types of investors and the information contained in this report does not constitute advice. Past performance is not a guarantee of future results. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker.