Catastrophic Loss in Chegg Sparks Surprising Unusual Options Volume

In a classic role reversal, the disrupter became the disrupted when education technology (edtech) specialist Chegg (US:CHGG) suffered a catastrophic loss of equity value on Tuesday, a victim of a younger and more relevant enterprise. Enter technology firm OpenAI and its blisteringly popular chatbot platform ChatGPT, which Chegg admitted was stealing its market share.

According to The Wall Street Journal, CHGG stock declined as much as 50% on May 2 before closing the session down 48.41% against the prior day. Since the beginning of this year, CHGG is off the breakeven point by a staggering 64.27%. As well, the WSJ reported that other edtech platforms, including language learning app Duolingo (US:DUOL), printed heavy red ink.

While he may have been the first, but certainly not the last, StockTwits founder and investor Howard Lindzon called Chegg the “first real casualty” of the new technology. From the “a picture is worth a thousand words” department, Bloomberg Opinion offered a five-second animated chart, “Watch ChatGPT destroy this company in real time.”

Sky’s Not Falling

Attempting to generate some stability in CHGG stock, Chegg CEO Dan Rosensweig stated during a conference call Monday evening that “[t]his is not a sky-is-falling thing.” Nevertheless, Chegg may suffer from a perception problem that may be extraordinarily difficult to overcome.

Based in Santa Clara, California, Chegg offers subscription-based online tutoring services, helping students with writing and math assignments. In addition, the platform offers study materials. However, with ChatGPT’s ability to answer questions written in natural human language, the AI-driven protocol offers students direct pathways to the answers they seek.

Fundamentally, users must be aware of the limitations of ChatGPT, primarily that it’s not always the most accurate source of reliable information. Another problematic element of the chatbot is its facilitation of misinformation. According to Euronews, websites leveraging ChatGPT and similar innovations have accelerated the spread of fake data and reports.

Nevertheless, the vexing headwind facing CHGG stock is that these vulnerabilities might not matter to investors. If they perceive ChatGPT to be the superior academic solution, Chegg may end up fighting against the cruel winds of inevitability.

Even Bets

For now, traders are putting up a surprisingly even battle for the trajectory of CHGG stock. According to Fintel’s screener for unusual stock options volume, following the close of the May 2 session, put volume for CHGG hit 29,877 contracts against open interest of 31,898. On average, put volume reaches only 970 contracts.

On the other end of the equation, call volume reached a respectable 25,794 contracts against open interest of 23,421. Usually, call volume lands at 1,257 contracts.

Still, prospective investors should note that overall options sentiment for CHGG stock remains decidedly negative. Per data compiled by Fintel, CHGG’s put/call ratio stands at 1.36. Given that puts generally represent bearish bets, put/call ratios greater than 1 indicate pessimistic sentiment.

This article originally appeared on Fintel

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