An Uptick in Options Volume for Zoetis (ZTS) Points to a Potential Opportunity

After a rough period in 2022 when few sectors not associated with the hydrocarbon energy industry suffered steep losses, investors may be able to forgive Zoetis (ZTS). Though the company commands incredible relevancies – specializing in medicine and vaccines for the pets and livestock market – ZTS stock couldn’t keep pace with the myriad headwinds.

One of the most problematic (and still ongoing) challenges for Zoetis centers on inflation. Though the rate of rising prices appears to have slowed conspicuously in recent months, it’s still lofty compared to recent historical standards. Further, with income for individuals and revenue for businesses drying up during this economically difficult phase, a temptation exists to cut down on non-human care.

However, investors may be willing to give ZTS stock another look. In the year so far, shares gained nearly 9% of equity value. And during the midweek session, when the major indices fell conspicuously, ZTS managed to eek out a positive return of 0.29%. Better yet, a large spike in options volume – particularly favoring calls – may signal a potential opportunity in Zoetis.

It’s not a terribly surprising proposition because of America’s love for its pets. According to the 2019-2020 National Pet Owners Survey conducted by the American Pet Products Association (APPA), per an article on Thezebra.com, about 85 million American families (or 67%) own some kind of pet. Therefore, Zoetis commands a very large addressable market, naturally boding well for ZTS stock.

In addition, the granularity behind the demographics matters. For instance, the APPA discovered that “Millennials are the largest segment of pet owners at 32%, with Baby Boomers close behind at 27%, Gen X at 24% and Gen Z at 14%.” Because millennials will continue to drive their spending power upward over the next several years, ZTS stock should enjoy a reliable northbound pathway.

Not surprisingly, then, options traders latched onto this reality, targeting Zoetis shares.

Rising Stock Options Volume for ZTS Stock

After the close of the Jan. 18 session, ZTS 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. Usually, traders leverage this data to determine which stocks may be due for big moves ahead.

Specifically, ZTS’s volume level reached 9,387 contracts against an open interest reading of 40,956. Call volume hit 8,516 contracts versus put volume of 871. Further, the delta between the trailing-month average total volume versus the prior session volume came out to 667.54%. The implied volatility (IV) rank hit 45.28%, 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 ZTS stock was 23.63% on Aug. 12, 2022. Two months later on Oct. 11, 2022, ZTS hit its IV high of 38.70%. Prospective investors should note that per Barchart.com’s technical analysis gauge, ZTS ranks as an average 8% sell.

Overall, the technical profile for the security can best be described as pensive. In the trailing half-year period, ZTS stock dropped nearly 10% of equity value. However, shares jumped about 12% in the trailing 30 days, thus leading to ambiguities in calculating technical momentum.

Presently, though, analyst sentiment is decisively bullish. Three months ago, Wall Street experts pegged ZTS stock a “strong buy,” breaking down as nine strong buys, one moderate buy and one hold. In the current month, both the consensus rating and the individual breakdown remain the same.

Finally, while ZTS stock did print red ink in 2022, over the past 60 months, the security features a beta of 0.73. This indicates that shares were significantly less volatile than the benchmark equities index.

Pet Industry Sales Moving in the Right Direction

In 2021, the APPA reported that total U.S. pet industry sales amounted to $123.6 billion, a banner year. Further, it jumped well ahead of 2020’s total sales of $103.6 billion, a then-record tally and an impressive one considering the impact of the COVID-19 crisis.

Just as significantly, the category breakdown also bodes well for ZTS stock. While the pet food and treats segment generated the most sales at $50 billion in 2021, the veterinary care and product sales came in a respectable second at $34.3 billion. Further, the segment of supplies, live animals and over-the-counter medicine rang up $29.8 billion.

In the prior year, vet care and product sales amounted to $31.4 billion while supplies, live animals and OTC medicines contributed revenue of $22.1 billion. Therefore, the holistic addressable market for Zoetis is both sizable and constantly expanding.

To be sure, recently resurgent recessionary fears shouldn’t be ignored. After all, consumers can only take so much. However, as a speculative wager, you can do a lot worse than ZTS stock.

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