While U.S. history is replete with narratives centering on the great outdoors, the segment itself sometimes generates controversy. Essentially, outdoor sports represent for many a palatable code name for the firearms industry. Although Vista Outdoor (VSTO) exited the gun-manufacturing side of the market, it still produces ammunition. Given the awful tragedies associated with gun violence, it was perhaps inevitable that VSTO stock performed poorly this year.
Indeed, since the January opener, Vista Outdoor gave up nearly 48% of equity value. For context, the benchmark S&P 500 index slipped nearly 19% during the same period. As a result, more than a few bears targeted VSTO stock for “negative” profits. Recently, unusual activity in the derivatives market suggests that shares could be due for another round of volatility.
What’s more, it’s not the first time that unusual options activity fired a critical warning for stakeholders of VSTO stock. Early this month, Zacks Equity Research noted that the “Jan 20, 2023 $10 Call had some of the highest implied volatility of all equity options” for the Dec. 2 session.
As the investment resource noted, “[i]mplied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other.”
Sure enough, between Dec. 2 and the close of the Dec. 15 session, VSTO stock fell more than 12%. With the options market again rumbling at an abnormal magnitude, the matter presents concerns for current shareholders.
Notably, Vista Outdoor will split into two separate companies next year. One side will cover the outdoor product line while the other will focus on the “sporting” section – a euphemism for the ammo segment.
Despite some unpleasant metrics, contrarian investors may want to consider keeping close tabs on Vista.
VSTO Stock Pings as a Highlight of Unusual Stock Options Volume
Following the close of the Dec. 15 session, VSTO 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. Typically, traders advantage this data to determine which stocks may be due for big moves ahead.
Specifically, VSTO’s volume level reached 4,502 contracts against an open interest reading of 71,937. Call volume hit 300 versus put volume of 4,202. The implied volatility (IV) rank hit 6.74%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.
To sum up, 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 VSTO stock was 39.03% on Dec. 14, 2022. Almost a year prior on Jan. 26, VSTO hit its IV high at 67.73%. Prospective investors should note that per Barchart.com’s technical analysis gauge, VSTO ranks as an average 88% sell. Specifically, both short term and longer-term indicators suggest bearish moves ahead.
However, Wall Street experts disagree, suggesting resilience in VSTO stock. Three months ago, analysts had a consensus view of “moderate buy,” broken down as three strong buys and two holds. In the current month, the broader assessment and the breakdown remain the same.
Both Sides of Vista’s Transition May Pay Off
While VSTO stock itself is difficult to predict given its recent volatility, over time, the fundamentals may smile upon the underlying company’s business split. Better yet, both enterprises – the outdoor segment as well as the ammo unit – can potentially flourish.
For the former segment, macroeconomic difficulties may once again provide a counterintuitively bullish narrative. As government agencies began relaxing mobility restrictions related to COVID-19, many consumers exercise their revenge travel urges. However, skyrocketing inflation really dimmed broader appetite for exotic vacations.
While it’s a bit of stretch, Americans still largely want to vacation. Therefore, they can instead trade down to cheaper alternatives, focusing on domestic routes. That might bolster Vista’s outdoor products unit.
On the other hand, the ammo segment is practically a no-brainer. It’s a difficult topic but the harsh reality is that since the start of the COVID-19 crisis, the firearms community expanded by almost 14 million new gun owners. Guns need ammo as much as cars need gasoline. Thus, once the negativity in VSTO stock is fully priced in, the better move might be to consider the long trade.
More Stock Market News from Barchart
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- FAANG Stocks Lose Their Leadership as Share Prices Fall
- Stocks Plunge as Fed and ECB Signal Higher Interest Rates
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.
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