Unusual Options Volume for Coty (COTY) Screams a Long-Term Opportunity

While Coty (COTY) may be one of the most recognized brands in the global beauty care industry, it hasn’t had much to show for it. Throughout its time as a publicly traded entity, shares peaked in June 2015. Since then, absent the occasional spike rallies, COTY stock endured a persistently negative slide. Not surprisingly, shares tumbled to a low in October 2020 after the rude intrusion of the COVID-19 pandemic.

Fundamentally, COTY stock couldn’t have asked for a worse crisis than SARS-CoV-2. Back during the early weeks of 2020, the once-foreign virus went international, soon breaching U.S. borders. As it became apparent that the pandemic would no longer be contained in specific regions, government agencies arguably had little choice but to temporarily shut down all non-essential activities. That was strike number one for the beauty care specialist.

Strike number two came in the form of the work-from-home pivot. Back during the initial impact of the coronavirus, companies were forced to balance worker health and that of their business enterprise. Fortunately, digitalization technologies improved to such a magnitude that a transition to remote operations was relatively seamless. However, punching numbers in living room-situated laptops inherently kills the incentive to look particularly presentable.

Perhaps strike number three could have arrived through a blistering inside corner two-seam fastball; that is, the permanent implementation of work from home. Fortunately for COTY stock, this circumstance might not materialize.

For one thing, an in-home white-collar workforce devastates the office-adjacent economy, such as coffeeshops and public transportation networks. Another factor stems from known productivity issues, specifically that most workers wasted time while on the clock.

Perhaps the biggest concern, as Reuters pointed out is that regulated industries may face compliance issues with a remote workforce. Plus, cybersecurity vulnerabilities from an expanded attack surface – whereby hackers only need to attack individual employees’ computers to access their employers’ main network – may be the final straw.

Work from home may be ending, which cynically bodes well for COTY stock. Better yet, options traders seem to recognize the upside opportunity.

COTY Stock Rightfully Attracts Unusually Bullish Interest

Following the close of the Jan. 4 session, COTY 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. Traders usually advantage this information to determine which stocks may be due for big moves ahead.

Specifically, COTY’s volume level reached 26,971 contracts against an open interest reading of 186,589. Call volume hit 25,258 contracts versus put volume of 1,713. Further, the delta between the trailing-month average total volume versus the prior session’s volume came out to 635.51%. The implied volatility (IV) rank reached 0%, a very unusual development.

Drilling into the details, the IV low for COTY stock was 33.21% on Jan. 4, 2023. Several months earlier on July 27, 2022, COTY hit its IV high at 112.34%. Prospective investors should note that per Barchart.com’s technical analysis gauge, COTY ranks as an average 88% buy. COTY’s short and medium-term indicators decisively rate bullishly, while its long-term indicator points to a split sentiment. This makes sense given that while the stock slipped 12% in the trailing year, it gained over 14% in the past one-month period.

At time of writing, most covering analysts maintain a moderately optimistic view regarding COTY stock. Three months ago, Wall Street experts rated shares as a “moderate buy,” breaking down as four strong buys, two moderate buys and one hold. In the current month, the consensus remains the same. The only difference is that one analyst with a moderate buy rating no longer covers the company.

Also, investors should note that COTY stock currently features a 60-month beta of 1.83, which is conspicuously more volatile than the benchmark equities index. Usually, this signal presents a warning sign to prospective investors and it’s no different here. Nevertheless, because the fundamentals undergirding Coty changed significantly, risk-tolerant contrarians may not want to let this stat be the sole arbiter in the decision-making process.

A Welcome Return to Normal

On a weekly average basis, COTY stock represents one of the securities that failed to move past its February 2020 peak. From this specific framework, then, Coty is an undervalued investment. However, outside fundamentals also make it worth at least a second look, if not a solid contrarian buy.

Mainly, that’s because the underlying narrative completely shifted. It’s not just about the possible transition back to the office. According to the Pew Research Center, at least four-in-ten U.S. adults faced high levels of psychological distress during the COVID-19 pandemic. Within this survey, 42% of participants stated that they had felt lonely.

However, with the rest of the world largely embracing a return to normal, people will have every incentive to reconnect with their favorite acquaintances and activities. Inherently, this social dynamic will almost surely boost the beauty care industry. After all, most people want to look presentable in public. And that could be the underappreciated catalyst that lifts COTY stock for the long haul.

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