How To Buy Chewy Stock At $15

Chewy (CHWY) stock recently retreated to near $20, down from its 52-week high of $48.62. Missed the pet e-commerce boom? Do not worry. There is still a strategic way to profit from Chewy’s long-term growth, with a potential margin of safety. Investors may be pricing in too much pessimism. But what if you could initiate a position at over 20% discount, securing shares at $15 each? Now we are talking.

If you think CHWY stock is a good long-term bet and have cash ready, here is a clever trade.

The Trade: 20% annualized yield at 20% margin of safety, by selling Put Options

CHWY currently trades near $20. You can sell a long-dated Put option expiring on March 19, 2027, with a strike price of $15, collecting roughly $187 in premium per contract (representing 100 shares).

That represents a 15% annualized yield on the $1,500 you set aside. Plus, keeping this cash parked in a money market account earns an extra 5.0% annually. This pushes the total yield to a compelling 20.1%. Most importantly, you give yourself the chance to buy CHWY stock at the discounted price of $15.

Sure, I see the 20% return. What if Chewy drops significantly from here?

There are two ways this trade could unfold:

1. CHWY stays above $15: You keep the full $187 premium. That equates to 12% extra income over the next 304 days on cash that might otherwise earn 5.0%. You never buy the stock.
2. CHWY closes below $15: You will be obligated to buy 100 shares at $15. Thanks to the $187 premium collected, your effective cost basis is just $13.13 per share. This represents a roughly 33% discount from current trading levels.

In short, this trade establishes a highly favorable risk-reward profile, provided you are comfortable owning Chewy for the long haul.

Is that a good deal, though?

If you end up owning CHWY stock, you hold a company that is:

• A leader in pet e-commerce: Chewy boasts over 21.3 million active customers.
• Consistently growing: Net sales generated $12.6 billion recently, reflecting a steady 6.2% growth rate.
• Positioned for upside: Chewy is expanding into veterinary care. The company captures $0.70 of every dollar moving online in the health vertical.

Factoring In The Regulatory Overhang

The recent unsealed California antitrust lawsuit documents allege Amazon (AMZN) colluded with vendors to push retailers, including Chewy, to collectively raise prices. While Chewy is not a direct defendant, the associated regulatory scrutiny has weighed heavily on market sentiment. However, the proposed options strategy accounts for this uncertainty, utilizing the $13.13 effective cost basis to provide a substantial cushion against near-term headline risk.

And The Risk of a Crash Is Lower Than You Think

Selling puts is only as good as the underlying business. Chewy’s fundamentals remain strong.

• Solid balance sheet: Chewy holds over $860 million in cash.
• Backed by recurring revenues: Autoship customer sales account for 85% of total net sales.
• Profitable and expanding: Gross margins are expanding toward 30%, generating roughly $396 million in trailing adjusted EBITDA. See how Chewy’s financials compare with some of its peers, including Wayfair (W).

Complementing Your Active Trades

Executing a cash-secured put on CHWY is a highly efficient way to engineer yield and optimize your entry point. It is a sophisticated play for active investors. But sustainable wealth building also requires a passive, structured engine.

For investors looking to complement their active trades with a hands-off compounding vehicle, the Trefis High Quality (HQ) Portfolio is the solution. It is engineered to capture market upside across 30 high-conviction stocks, and has delivered over 105% in cumulative return since inception.