The on-again, off-again tariffs battle remains a key focus for investors on Friday. That’s put the kibosh on any additional gains for the S&P 500, which jumped over 2% earlier in the week.

Also on the agenda for Friday is the release of the latest core PCE number for April. The U.S. core personal consumption expenditures price index is what the Federal Reserve uses to consider interest rate decisions. 

Economists expect the core PCE to be 2.5% year-over-year, up 0.1 percentage points from the Previous Month. Also on tap is the University of Michigan’s U.S. Consumer Sentiment Index for May. Economists expect it to be 51.1, down from 52.2 in April and 69.1 in May 2024.   

I remain unconvinced that the current situation is as rosy as the markets suggest—the S&P 500 is up 6.2% over the past month—but I digress. 

I’m here to comment on Thursday’s unusual options activity, and I’ll do that. 

There were 698 unusually active call options yesterday—I define this as options with Vol/OI (volume to open interest) ratios of 1.24 or higher and expiring in seven days or more—with two for Chewy (CHWY), the online pet care retailer, both of which were in the top 100. 

If you’re like me and dislike Chewy stock, bear with me as I discuss why the two unusually active call options are no-brainers.

The Unusually Active Call Options  

As you can see, both of the calls expire next Friday. Both are out of the money. Both had unusually active options volumes relative to their open interest. And, both have a less than 50% chance of making money. 

So, why do I think they’re no-brainers when I dislike Chewy stock? Read on and I’ll tell you. 

Have an excellent weekend!

Good Stock or Good Company?

It’s a rare occurrence for a public company to be both. 

The Irrelevent Investor, Michael Batnick, had a post yesterday with the simple headline: Most Stocks Suck. Given the performance of the Maginificent 7 over the past few years compared to the other S&P 500 stocks, I’d agree with Batnick’s take. 

Batnick points out a terrifying data point:

“More than 40% of all companies that were ever in the Russell 3000 Index experienced a ‘catastrophic stock price loss’, which we define as a 70% decline in price from peak levels which is not recovered,” Batnick wrote, quoting from a JPMorgan report from November 2022. 

Which brings me to Chewy.

It’s Not a Great Company

Is it a great company? I would argue no, but I’m sure there are plenty of investors who would disagree with me. 

If there’s a company I should love, Chewy would be it. My wife and I foster cats and dogs. Over the past three or four years, we’ve seen more than 100 come through our house. We love animals unconditionally. Full stop. 

However, the fact that we are big animal lovers doesn’t mean I’m going to support Chewy or its stock unquestioningly. That loyalty has to be earned. 

Full disclosure: I live in Halifax, Nova Scotia. Chewy does not currently ship to this location, although it does ship to Canadian customers in Southern Ontario and the Ottawa area.   

Geography aside, I’m more than happy to frequent PetSmart, its former owner, who will gladly ship to my address. 

The reality is that Chewy is an unexceptional company in an industry that tends to favor scale, which it has, but that comes with low profitability, often sporadic at best. 

In the 23 quarters it has reported earnings as a public company, it has generated an operating loss on 14 occasions (61%), including its most recent quarter, Q1 2025, when it lost $9.7 million from $3.25 billion in revenue. 

Chewy’s record for consecutive quarters with an operating profit is just three, achieved between Q1 and Q3 2024. Furthermore, its most significant operating profit over the past 23 quarters was $64.6 million in the first quarter of 2024, an operating margin of 2.2%. 

That’s hardly the stuff of greatness. 

It’s A Good Stock

Chewy stock is up 33% in 2025 and 106% over the past 52 weeks, both of which are significantly better than the S&P 500. I don’t think you can deny it’s near-term success. 

As a public company, however, it has had its ups and downs, trading above $120 in February 2021 (mid-COVID) and as low as $14.69 in April 2024. If you bought at the bottom, you’ve done well. Congrats. 

From a valuation perspective, its enterprise value of $18.37 billion is 52.4 times its EBITDA (earnings before interest, taxes, depreciation, and amortization), according to S&P Global Market Intelligence. This compares to 7.6x for Kroger (KR), the grocery store chain, whose operating margin as of Q4 2024 was 1.8%, very similar to Chewy’s best quarter.

If you’re bullish on Chewy, you’re likely to point out that its sales growth in 2024 of 6.4% is four times Kroger’s 1.5% increase. It deserves a much higher multiple. 

I’d counter that Kroger has delivered 23 consecutive quarterly operating profits, 15 more than Chewy, suggesting that either KR stock is undervalued or Chewy is overvalued.

Chewy has managed to convince investors that it's worth paying 52 times EBITDA for its customer growth. 

I don’t think it is, but the mere fact that it has makes it a good stock.    

The Calls Are No-Brainers

Getting back to the two unusually active call options from yesterday, I consider them no-brainers for a couple of reasons. 

First, the ask price of $0.55 for the $46.50 call is just 1.2% of the strike price, while the ask price of $1.24 for the $44.50 call is just 2.8% despite being only pennies out of the money. 

The former call’s profit probability is 18.11%, while the latter’s is 32.57%. Neither is a significant cash outlay.

Secondly, with Chewy’s shares up nearly 19% in the past month, it’s more than possible for the momentum to carry its share price well past $46.50 by next Friday. That’s why the Barchart Technical Opinion is a Strong Buy. 

I don’t like Chewy stock, but that doesn’t mean these two calls aren’t worth considering. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.