Here’s Why Unusual Options Volume for Valvoline (VVV) Sells Itself

Arguably one of the most underappreciated publicly traded companies, Valvoline (VVV) essentially sits in the background. As a manufacturer and distributor of its namesake oil, additives and lubricants, it’s difficult to label Valvoline as exciting. Nevertheless, traders began targeting VVV stock in the derivatives market, leading to an intense surge in call options volume. Fundamentally, the underlying enterprise should jump higher on the normalization of the workplace.

Of course, the most pressing influencer for VVV stock centers on Valvoline’s upcoming fiscal first-quarter earnings report, scheduled for release before the opening bell on Feb. 7. Prior to the disclosure, analysts targeted earnings per share to hit 22 cents. Also, heading into the report, VVV gained more than 10% of equity value on a year-to-date basis. Therefore, the brand deserves a bit more respect.

Indeed, in the trailing year, VVV stock shot up over 11%. For comparison, the benchmark S&P 500 index, declined by 8.3% during the same period. Although Valvoline incurred a choppy and decidedly negative performance for most of 2022, circumstances shifted dramatically in the fourth quarter. Since Oct. 12, VVV skyrocketed to the tune of nearly 45%.

Primarily, the sentiment shift centers on the gradual return to full normal, particularly in the corporate office. For instance, in Canada, the back-to-school season in August and September coincided with employers pushing to recall their employees. At the time, many experts believed that upper management teams would have to compromise by offering hybrid solutions.

However, in the U.S., the hybrid approach may also be facing the axe. Most notably, Disney (DIS) squashed its hybrid work arrangement, noting that from March 1, employees must return to the office four days of the week.

With other employers likely to follow suit, this dynamic would translate to greater traffic volume on U.S. roadways. Cynically, then, the return of the morning commute should be a bonanza for Valvoline.

Bulls Pile Into VVV Stock

Following the close of the Feb. 6 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 leverage this information to determine which stocks may be due for big moves ahead.

Specifically, VVV’s volume level reached 42,229 contracts against an open interest reading of 78,607. Call volume hit 41,872 contracts versus put volume of 357. Further, the delta between the trailing-month average total volume versus the prior session volume came out to 1,490.55%. The implied volatility (IV) rank hit 34.57%, 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 month later on May 10, VVV hit its IV high of 61.04%. Prospective investors should note that per Barchart.com’s technical analysis gauge, VVV ranks as an average 100% buy. As stated earlier, such a strong technical indicator isn’t surprising given the stock’s positive return under intense bearish pressure.

In addition, analyst sentiment aligns with the implications in the price chart. Three months ago, Wall Street experts pegged VVV stock a “strong buy,” breaking down as four strong buys and one hold. In the current month, the consensus remains the same. However, the lone hold gave way to a moderate buy.

Finally, VVV’s 60-month beta sits at 1.38, reflecting higher volatility than the benchmark equities index. This might be explained due to Valvoline’s general underperformance prior to the COVID-19 crisis.

Look to the Employment Market

Unfortunately, because I’m writing this on the eve of Valvoline’s earnings report, any discussion on the financial disclosure would be quickly rendered moot. Even so, earnings speculation represents a small portion of the bullish case for VVV stock. Again, in the long run, the normalization of society should lift the underlying enterprise.

While it might seem debatable that employers will force an end to remote operations, investors simply need to read between the lines. It’s not just about Disney. Rather, the technology sector has witnessed layoffs from seemingly all corners. True, the labor market printed a stronger-than-expected report. However, the leisure and hospitality sector led the strong results – and those are not jobs that can be done remotely.

In other words, the most viable opportunities for workers center on positions that require showing up, not calling it in. Of course, this translates to commuting to the workplace, thus boding very well 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. For more information please view the Barchart Disclosure Policy here.