Unusual Options Volume for Valvoline (VVV) Points to a ‘Hidden Gem’ Opportunity

At first glance, the narrative for oil, additives and lubricants specialist Valvoline (VVV) seems suspect. Although vehicle miles traveled jumped significantly since the pandemic lows of early 2020, the statistic hasn’t quite reached the highs seen right before COVID-19 ruined everything. To be sure, many white-collar workers continue to operate remotely, thus blocking a major source of vehicular mobility. Still, this circumstance may change, possibly boding well for VVV stock.

Admittedly, though, the current framework isn’t the most encouraging for Valvoline and its ilk. On a year-to-date basis, VVV stock slipped nearly 13%. While better than the benchmark S&P 500 index – which dropped almost 20% during the same period – double-digit losses aren’t exactly reassuring, no matter what the context. Further, Valvoline’s financial performance hasn’t always been up to snuff.

For example, in mid-November of this year, the company released its earnings result for its fiscal fourth quarter. Per the AP, Valvoline reported net income of $157.7 million, translating to an adjusted earnings per share of 59 cents. This beat Wall Street’s consensus target of 51 cents. However, on the top line, circumstances were different. Generating revenue of $335.4 million, the tally missed the Street’s consensus forecast.

Still, overall, the back half of 2022 has been much more promising for VVV stock. In the trailing six months, shares gained just under 9%. And in the trailing five days, VVV moved up 5.51%. Fundamentally, an underappreciated catalyst may be the resumption of normal working schedules in 2023.

According to a Resume Builder survey, “90% of companies will require employees to return to office in 2023.” More importantly, an economic incentive exists to get worker bees in line. Essentially, as I mentioned in June for Barchart.com, if your work can be done from home, it can be done in India (or any other country).

Perhaps the Washington Post said it best. “If you can do your job at home, not only can someone probably do it in another country for cheaper, odds are soon that a computer will be able to do it, too.” Everyone will need to justify their jobs, forcing those that can read between the lines to start their engines.

VVV Stock Attracts Unusual Stock Options Volume

After the close of the Friday Dec. 23 session, VVV stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This stat shows the difference between the current volume and the average volume over the past month. Typically, traders advantage this data to determine which stocks may be due for big moves ahead.

Specifically, VVV’s volume level reached 4,183 contracts against an open interest reading of 78,191. Call volume hit 24 contracts versus put volume of 4,159. Further, the delta between the one-month average total volume versus the volume of Dec. 23 jumped up 343.11%.

The implied volatility (IV) rank hit 14.50%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period. To summarize, 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.

The IV low for VVV stock was 19.82% on April 7, 2022. A little more than a month later on May 10, VVV hit its IV high at 61.04%. Prospective investors should note that per Barchart.com’s technical analysis gauge, VVV ranks as an average 72% buy. Presently, the stock features positive short and medium-term indicators, while its longer-term indicator is split 50/50.

Continuing the general sense of optimism, Wall Street experts have a bullish take on VVV stock. Three months ago, analysts had a consensus view of “strong buy,” broken down as four strong buys and one hold. In the current month, the assessment remains the same. However, the hold moved up to a moderate buy rating.

Societal Pressures May Help Valvoline

Perhaps one of the positives about the otherwise horrific COVID-19 crisis was that it conspicuously reduced traffic levels across major metropolitan areas. Of course, VVV stock wouldn’t benefit from this dynamic as it implies less-frequent usage of its underlying products. However, moving forward, this narrative may change positively for Valvoline due to societal pressures.

A major contributor to the current housing crisis isn’t so much related to a lack of housing but a lack of affordable housing in areas that were previously affordable. And a culprit – if not the culprit – is the influx of remote workers. In other words, technology-fueled gentrification destroyed affordability in America’s more rural regions.

It all comes down to the math. According to U.S. Census data, the median household income in San Francisco, California is $126,187. In Boise, Idaho, this stat is only $68,373. By “decentralizing” work from the workplace, Californians are now in a position to ruthlessly leverage their vast economic privileges against Idahoans when such circumstances were not possible in the pre-pandemic paradigm.

Also, it’s important to realize that metropolitan workers are not bringing jobs to rural Americans; instead, they’re just bringing themselves. And while places like Boise may experience an uptick in economic activity, in the long run, the influx of Californians only raises costs – perhaps unsustainably – for native Idahoans.

Therefore, in much the same way that 2020 caused corporations to recognize deep-seated social inequity issues, the same might materialize regarding the tech worker gentrification of small-town America. Combined with economic dynamics, social pressures may help push for workplace normalization, which eventually should translate to higher demand for VVV stock.

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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.