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Weight Watchers Traders Exploit Pre-Earnings Premiums

WTW's short-term options are relatively pricey

by 8/1/2012 12:05 PM
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Option players are pummeling Weight Watchers International, Inc. (NYSE:WTW - 50.01) today, especially on the put side of the aisle. At last check, the diet diva has seen about 1,300 calls and 2,900 puts change hands, compared to its average intraday volume of fewer than 500 calls and around 300 puts.

Most active has been the out-of-the-money October 45 put, which has seen more than 1,500 puts change hands on open interest of just 328, signaling new positions. However, the majority of the puts crossed at the bid price, suggesting they were sold. By writing the puts to open, the sellers are expecting WTW to remain north of $45 through October expiration. In this best-case scenario, the puts will expire worthless, allowing the trader to pocket the entire premium received at initiation.

And thanks to escalating demand ahead of WTW's earnings release tonight, that premium is relatively rich. The stock's Schaeffer's Volatility Index (SVI) has soared to its current perch of 75% -- above 89% of all other readings of the past year. In other words, WTW's near-term options are relatively expensive at the moment.

From a broader sentiment standpoint, most options traders have been employing more traditional measures to bet bullishly on WTW. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day call/put volume ratio of 2.78, indicating that traders have bought to open nearly three calls for every put during the past two weeks. What's more, this ratio ranks in the 87th annual percentile, implying that speculators are scooping up bullish bets at a faster-than-usual clip.

Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.53 indicates that calls nearly double puts among options expiring within three months. Plus, this ratio sits just three percentage points from an annual nadir, suggesting near-term speculators have rarely been more call-heavy during the past year.

At last check, WTW has shed 0.9% to explore the $50.13 vicinity. According to Thomson Reuters, the company has matched or exceeded Wall Street's per-share profit projections in three of the past four quarters.


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