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Upon a cursory look, shares of beauty care specialist Coty (COTY) might appear due for a healthy corrective action. Since the start of this year, COTY stock soared nearly 43%. For context, the benchmark S&P 500 index – while arguably beating expectations – returned just over 16%. Priced at a premium to earnings, now might seem like an ideal time to take some profits off the table.
Nevertheless, it’s quite possible for the rally in COTY stock to continue moving forward. For one thing, options traders appear enthused about the upside prospect. On a fundamental note, COVID-19 fears have all but disappeared. It’s just rare to see folks wearing protective covering these days, even with the SARS-CoV-2 virus mutating.
Such fading concerns translate to broader social normalization. For example, going out and meeting new people in social environments no longer represents an acute threat to personal health (discounting of course interactions with individuals of nefarious intent). Furthermore, corporate America can now use the end of the crisis to enforce pre-pandemic workplace norms.
All these factors point to COTY stock potentially moving higher, defying gravity and frustrating the bears to no end.
Options Traders Bid Up COTY Stock (for Good Reason)
Following the close of the July 5 session, COTY stock lit up Barchart’s screener for unusual stock options volume. Specifically, total volume reached 35,657 contracts against an open interest reading of 140,496. Further, the delta between the Wednesday session volume and the trailing one-month average metric came out to 828.81%.
Drilling down, call volume hit 25,387 contracts against put volume of 10,270 contracts. This pairing yielded a put/call volume ratio of 0.40, which favors the bulls. However, the put/call open interest ratio at time of writing stands at 1.27, which tilts heavily toward the bearish spectrum.
Still, the overall sentiment appears favorable for those on the long side of the trade. Using options flow data from Fintel, most of the transactions posted on the midweek session involved selling puts, which carry bullish implications. Notably, a multi-sweep transaction in the late morning hours on Wednesday saw significant volume (14,988 contracts) tied to call purchases, a classic bullish action.
Fundamentally, options traders have good reason to be optimistic about COTY stock. With COVID-19 fears a mere blip in the rearview mirror, consumers are ready to reclaim their pre-pandemic activities, such as going out on vacation and meeting new people. Further, with global government bodies for the most part eliminating their COVID-related mitigation protocols, people are free to move about.
Inherently, then, the period of broader social isolation is over. Organically, this framework should bolster COTY stock as demand for beauty products rises.
Corporate America Pushes for Workplace Normalization
Even better (on a cynical basis) for COTY stock, it’s not just on the personal or discretionary side of the economy that may widely lift the beauty care segment. Rather, Corporate America’s push for workplace normalization may end up facilitating a burgeoning total addressable market for Coty and its peers.
Before getting into the discussion, I fully understand that the concept of the return to the office raises much controversy and anger. Up and down public forums that discuss major corporations mandating at minimum hybrid schedules, workers have lashed out. Most argue until their face turns blue that they’re more productive at home than in the office.
Curiously, though, many of these comments are posted during normal business hours. Setting that aside, upper management teams are beginning to have serious reservations about a permanent shift to remote operations.
Earlier this year, tracking software caught a Canadian accountant of committing time theft or collecting a paycheck while doing non-work-related endeavors, including goofing off on one end of the spectrum to working for another company on the other end. The accountant was later ordered to pay back the wages she fraudulently earned.
Moreover, the situation has likely gotten so bad – I’m sure not all time theft stories generate mainstream headlines – that protocols have been developed to address this challenge.
Of course, employers have an easier solution – bring everyone back into the office. Increasingly, companies have ratcheted up the pressure on their employees and while individual worker bees talk a tough game with their keyboard, actually following through with their threats represent a different matter.
Plus, with the unemployment rate rising and average hourly wage growth declining since August 2022, workers may lose leverage. In due time, this backdrop could add fuel to the fire. Therefore, it might be too early to give up on COTY stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
