Price Forecast:

Bullish Case: Stitch Fix's recent cost-cutting measures could lead to profitability and revenue stabilization as seen in the elevated implied volatility from upcoming options. Positive market sentiment, driven by potential partnerships, may bolster investor confidence.

Bearish Case: Weak demand in retail persists with Stitch Fix's revenue decline and industry challenges, leading to operational struggles and high volatility. If the company fails to reverse its fortunes by 2026, further stock depreciation is likely.

Potential Outcomes:

1) 60% chance of cost-cutting yielding profitability.

2) 30% chance of successful new partnerships driving growth.

3) 10% chance of ongoing revenue decline leading to bankruptcy.

4) Elevated volatility may signal market uncertainty about these outcomes.

Trading Oracle: Consider a bearish credit spread by selling the SFIX $3.50 Puts and buying the $3.00 Puts expiring in ~52 days to capitalize on high implied volatility—targeting low-cost downside protection with defined risk. This strategy offers excellent potential returns given the market’s bearish outlook.

October 30, 2024