Tony Zhang's Chewy Trade Ahead Of Earnings

Tony Zhang of OptionsPlay suggested on CNBC's "Options Action" that traders should consider a bullish options strategy in Chewy Inc CHWY ahead of earnings, scheduled for September 1. The options market is implying a move of 9% in either direction for the event and the stock has moved around 6% on average.

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Zhang expects the stock to move higher going into earnings, but he finds the valuation quite stretched for this business. Chewy has managed to post a consistent 40% revenue growth, so its valuation might be justified, explained Zhang.

He wants to exploit elevated implied volatility in the name by selling the October $90/$83 put spread for a total credit of $3. If the stock trades above $90 at the October expiration, he is going to collect the premium. The trade is going to start to lose money below $87 and it can make a maximal loss of $4 if the stock drops to $83 or lower.