Unusual Stock Options Volume Points to a Big Move for Church & Dwight (CHD)
Generally speaking, household goods giants like Church & Dwight (CHD) rarely generate much excitement. Best known for its Arm & Hammer brand of baking soda and odor control products, CHD stock certainly represents an everyday relevant enterprise. It’s just that under the recent paradigm of meme trades and cryptocurrency speculation, Church & Dwight seems anachronistic.
However, this circumstance might change entirely because of the most recent read regarding the employment situation. According to the AP’s Paul Wiseman, employers added 263,000 jobs in November, “a substantial gain that was far above economists’ expectations.” As well, wages increased robustly, posing dramatic problems for the Federal Reserve.
To put it bluntly, more money continues to chase after fewer goods. Unfortunately for the Fed, it seeks the opposite circumstance: less money chasing after more goods. Throughout this year, the central bank aggressively raised the benchmark interest rate to cool inflation. But as the latest jobs report confirmed, the effort has so far failed.
While it’s impossible to say with absolute certainty what the Fed’s next move will be, certain indicators suggest that it will continue to raise interest rates, if not more aggressively in 2023. For instance, James Bullard, who leads the Federal Reserve Bank of St. Louis, stated that rates must move higher than previously projected to control inflation.
Now, in a battle between the world’s most powerful central bank and the U.S. labor force, something will have to give. More than likely, amid the backdrop of the technology sector’s mass layoffs, consumer sentiment – which already trends near all-time recorded lows – will suffer a negative impact.
Cynically, this dynamic may benefit CHD stock as consumers redirect most of their spending funds toward the essentials, leaving what remains for discretionary items. As well, interesting developments in the options arena suggest a big move is in order for CHD.
Options Volume Spike Suggests a Big Move Ahead for CHD Stock
Following the close of the Dec. 2 session, CHD stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This metric shows the difference between the current volume and the average volume over the past month. While bringing to attention unusual activity, it may also signify that traders believe a big move is ahead for the underlying security.
Specifically, CHD’s volume hit 5,734 contracts against an open interest reading of 9,097. Call volume hit 297 versus put volume of 5,437. The implied volatility (IV) rank hit 36.12%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.
Just as a quick recap, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.
Interestingly, the IV low for CHD stock was 17.07% on Aug. 12, 2022. On Oct. 14, CHD hit its IV high at 34.45%, indicating rising demand. To be fair, put volume far exceeded call volume during the Dec. 2 session. Notably, Barchart.com’s technical analysis indicator rates shares as a “24% sell.” Therefore, it’s not terribly surprising that some traders may be bearish in the near term against Church & Dwight.
However, at time of writing, the put/call open interest ratio for CHD stock stands at 0.61. Typically, the delineation between bullish and bearish sentiment is 0.70, with figures below this point indicating that more traders overall are buying calls than puts.
Compelling Fundamentals Bolster Church & Dwight
Even if the November jobs report hit a soft number that the Fed was hoping for, monetary policymakers would probably still aim for further tightening. What gets lost in the broader discussion is that the central bank can’t just approach the inflation problem as a month-to-month concern.
According to data from the Federal Reserve Bank of St. Louis, the real M2 money stock expanded 16.75% from February 2020 through May 2020. And from there, the money stock would expand another 10.2% to its peak in January of this year. So far, the Fed has yet to bring this metric back to May 2020 levels.
Even if it does, the trick would then be to address the original near-17% boost in the money stock. In other words, it’s an ongoing problem that the Fed will need to approach carefully lest the economy fall into a recession.
This brings plenty of uncertainty to the picture. However, for investors who want some upside opportunity while staying in the markets, CHD stock may offer a solid idea. Consumers need the underlying products irrespective of economic conditions, thus facilitating inelastic demand.
More Options News from Barchart
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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.