Chewy Stock Pops on Big Upgrade

The analyst called fundamental concerns "overblown"

Chewy Inc (NYSE:CHWY) stock plunged 10.5% last week -- and tagged a record low of $26.29 on Friday -- after the online pet retailer reported a larger-than-anticipated second-quarter loss. This morning, though, CHWY shares are up 3.6% at $27.35, after Nomura Instinet upgraded the stock to "buy" from "neutral," calling concerns over Chewy "overblown," and saying it is "confident that the core business continues to perform."

Options traders have remained upbeat during CHWY stock's recent slide. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players bought to open 21,843 calls over the last 10 days, compared to 17,978 puts.

This heavy call-skew is seen in the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.44, too, which shows calls more than double puts among options expiring in three months or less. The October 35 call is home to peak front-month call open interest of 5,290 contracts, and data from the major options exchanges confirms mostly buy-to-open activity here.

Given how shorted Chewy stock is, it's possible some of the activity at this out-of-the-money strike is a result of short sellers hedging against any upside risk. Short interest on CHWY spiked 16.8% in the most recent reporting period to a record 9.96 million shares. This represents 22.3% of the equity's available float, or 2.4 times the average daily pace of trading.