Chewy shorts retreat as options bulls extend their lead

CHWY enters the final stretch before its December 2 earnings date with short sellers pulling back and options traders growing more bullish, a continuation of the shift that began last week but now confirmed by a second week of data pointing the same way.

The most notable development this week is that bears are covering. Short interest has fallen 6% over the past week to 29.5 million shares, or 13.1% of free float. That reverses the aggressive rebuild that defined the prior two weeks, when the position surged from roughly 22.4 million shares to a peak above 31.4 million. The short score has also drifted lower, from 59.4 at the start of last week to 56.7 by Thursday, its lowest reading in the 10-day window. The borrow market tells the same story in a different way. Availability has risen sharply, now at 605%, up 39% on the week and the loosest the lending pool has been in the past year. Cost to borrow has eased to 0.40%, down 7% on the week and roughly 19% over the past month. Bears who stayed short are doing so cheaply and without friction, but a meaningful chunk of them have left the trade.

Options positioning has continued its drift toward the bullish end of the range. The put/call ratio has dropped further to 0.59, now almost 1.7 standard deviations below its 20-day average of 0.74. That puts it close to the 52-week low of 0.40. The move is consistent with what last week's note flagged, calls dominating flow, but the ratio has compressed further since then. Three weeks ago the PCR was above 0.87. The speed and direction of the move is the kind of shift that typically reflects genuine repositioning rather than daily noise.

The Street's view has been largely stable since September's post-earnings round of target cuts. After the Q2 result, most banks trimmed targets while keeping positive ratings: Goldman Sachs holds a Buy with a $30 target, Morgan Stanley maintains Overweight at $36, and RBC and TD Cowen both sit at Outperform or Buy with targets in the low $30s. JP Morgan moved to Neutral at $24 on September 11 and Mizuho lowered its target to $28 at the end of September, the most recent named action. All of these revisions are more than three weeks old. The consensus is Hold with seven analysts there, while the bull case centres on autoship loyalty (84.6% of revenue), seven straight quarters of active customer growth, and margin expansion from advertising and health services. Bears point to slowing pet household formation, Amazon and Walmart's deepening pet category push, and execution risk in vet clinics and international expansion. With the stock at $21.93, the gap to even the more cautious targets around $24 to $28 implies the market is pricing in continued pressure.

One piece of corporate activity stands out in the alt data. Chewy spent $200 million on buybacks in Q2, a 766% increase on the same quarter last year and the largest second-quarter buyback on record for the company going back to 2024. That signals management's own read on value, even if the stock has slid since the repurchases were made.

The ownership register carries a structural fact worth noting. PetSmart and BC Partners together control roughly 88% of the float-adjusted share count, which compresses the tradeable float. Among institutional shareholders, Canada Pension Plan Investment Board built a 5% stake of more than 20 million shares as of the August filing, the largest single addition in the disclosed holder list. Schedule 13D/G positions are event-driven disclosures around the 5% threshold; stakes are as last disclosed and holders dropping below 5% may exit without a further filing.

The December 2 earnings date is now 39 days away. The last two prints both produced sharp negative reactions, with the stock falling roughly 9% and 8% on the day respectively, so the question is whether the current short covering and call-buying represent genuine optimism about the Q3 print or simply a squeeze off an overbuilt bear position. With short interest still at 13.1% of float and the PCR sitting near its annual low, both sides are making a statement heading into what has historically been a difficult reporting date for the stock.