A dog health food store recently opened up near where I live. They sell all the usual stuff that you can find in any Whole Foods, only the canine version: organic food, natural medicines, healthy treats, Hobbitey-looking dog sweaters and jackets, and a smattering of prepared foods (no kidding). And best of all, they offer same-day delivery service to the neighborhood. Needless to say, the prices are high -- very high -- and the customers all look like they just left Trader Joes or REI. Judging from how full the parking lot is, and the obvious high demographic, business must be good. After all, the US pet market is about $130 billion. Apparently, people will spend anything, on anything, to keep their dogs happy, healthy, and part of the family.

Chewy (CHWY), the online pet supply retailer, taps into this. In addition to all the usual pet supplies, Chewy also offers online vet visits and pet insurance. The firm's history reads like something right out of Startup Heaven. It's founder, Ryan Cohen, never went to college and started the company in 2011 at age 25. After being rejected by over 100 VC firms, he finally raised $15 million in 2012. By 2016, the company had $900 million in sales and was the number one e-commerce pet retailer. In 2017, Cohen sold Chewy to PetSmart for $3.35 billion, the largest e-commerce acquisition of all time. He stepped down as CEO in 2018. In June 2019, Chewy went public with a valuation of $8.7 billion.

Chewy (CHWY): Underlying + IV
(Source: OptionMetrics)

Of course, long term positive fundamentals do not necessarily turn into short term gains. CHWY, as well as Petco (WOOF -- great ticker!), have been on the defensive since the Golden Age of Growth Stocks in 2020-2021. Chewy is currently off almost 75% from its highs reached in early 2021 and is below its IPO level of $35. Volatility is on the low side in the low 50% region. However, the company's most recent financials look promising, with record revenue and a first ever profit of more that $49 million. If you're looking for bargains, and believe the long term pet humanization story, CHWY might be for you.

SVB, First Republic, et al: Still Going On?

First Republic (FRC) finally augured in over the weekend, marking the end of a month and a half long death spiral. At this point, the details behind its collapse and JPM's takeover are well-known. The only thing unknown is whether this marks the end of the regional bank crisis or whether FRC's demise is a foretaste of things to come.

In a previous blog from March 30 (It's NOT 2008!), I noted that the SVB crisis was not in the same league as 2008, despite the hysteria surrounding it at the time. One facet of the crisis that was insane, and even awe-inspiring, was the explosion in fixed income implied volatility. As I noted at the time, interest rate implied volatility is usually a pretty placid affair, especially when you're used to looking at hyper-volatile single stocks and commodities. But at the height of the crisis, and with bad memories of 2008 flooding back, interest rates were suddenly the most volatile thing on the planet. 2-year note implied volatility blew out to almost 5.5% on March 20, almost 2.8X higher than it was at the beginning of February. 5 and 10-year notes behaved similarly.

Impressive, but what's happened since? As you might have guessed, interest rate implied volatility has landed back to more normal levels (see charts below), but is still trading at elevated levels and prone to short-term spikes compared to where it was before the crisis. Since implied volatility is a measure of future price uncertainty, you can use it to gauge the "worry factor" of any market. In this case, implied volatility seems to be signaling that the interest rate markets are still worried about regional banks (although the crazy shock phase is over, for now), the debt ceiling, and the future course of Fed rate hikes. The difference between now and just a few weeks ago is that the current worries are now well-known and have become chronic. Hence, the slowdown in interest rate implied volatility.

10-year note IV
(Source: OptionMetrics)
5-year note IV
(Source: OptionMetrics)