WisdomTree Options Active Ahead of Index Shake-Up

WisdomTree Investments, Inc. (WETF) will replace Qorvo Inc (QRVO) on the S&P MidCap 400 Index (MID)

Jun 10, 2015 at 10:53 AM
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ETF manager WisdomTree Investments, Inc. (NASDAQ:WETF) jumped to an all-time high of $23.06 out of the gate, thanks to an index shake-up. While Qorvo Inc (NASDAQ:QRVO) will replace soon-to-be bought Lorillard Inc. (NYSE:LO) in the S&P 500 Index (SPX) after tomorrow's close, WETF will replace QRVO in the S&P MidCap 400 Index (MID). Against this upbeat backdrop, option traders are scrambling to place bets on WETF. 

WETF was last seen 5.9% higher at $22.91. The stock has advanced more than 46% so far in 2015, but option players today are favoring long puts -- echoing the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, WETF's 10-day put/call volume ratio of 14.48 stands higher than 79% of all other readings from the past year, reflecting a healthier-than-usual appetite for puts over calls during the past two weeks -- suggesting traders are either gambling on or hedging against a pullback. 

Today, WETF puts are running at twice the average intraday clip, and have outnumbered calls by a margin of about 9-to-1. Most of the action is attributable to a large sweep of July 22 puts that were apparently bought to open at a volume-weighted average price (VWAP) of $1.23.

If the buyer is "vanilla," his objective is for WETF to breach $20.77 (strike minus VWAP) by the close on Friday, July 17 -- when the options expire -- as the trade will begin to profit. If the buyer is a WisdomTree Investments, Inc. (NASDAQ:WETF) shareholder, he's hoping WETF extends its uptrend, but the puts lock in an acceptable exit price ($22), should the stock backpedal beneath the strike within the options' lifetime.


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