Market makers called the $CHWY earnings

Lesson in Course: Expert Insights (expert, 17min)

The next morning follow up with Bryce on my options play with Chewy. Do I decide to lock in my 80% return?

Chewy beat both on revenue and profitability the stock jumped overnight.

01:03 Morning price action staying within the at-the-money straddle expected by Market Makers the day before.

The bear case

02:23 Selling out (Bearish)

Hitting the bid means offering what the market makers are currently offering.  This is to execute at a guaranteed price. Offering mid-market (between the bid and ask) often cuts down the ability for market makers to make a big profit. It also doesn't guarantee an execution.

The bull case

04:54 Exercising ITM (Bullish)

Exercising in-the-money happens when I let the options expire in-the-money. For each lot of options, I will result in buying 100 shares of the underlying stock (in this case CHWY) for the strike price. This is good for a long-term bullish bet on CHWY. However, it's important to note that 100 shares of CHWY will increase my margin requirement.

05:24 Rolling up shares (super Bullish)

Take that $750 in the value of the position, or over $400 in profit and lock that in, and then roll it up. Rolling up means you buy a dollar cheap (options that are worth a dollar). So you take some of that $400 of profit to continue to bet on a bullish run on CHWY. The issue is that cheap options require a much higher break-even and so the stock really has to keep the momentum.

Actionable ideas

08:52 CHWY ended the day at $84.71 a share, which Bryce mentioned might happen. I needed up exiting my close when the stock was at $87.10, and I am glad I locked in gains.