Weight Watchers International, Inc. (WTW) Traders Brace For a Slim-Down

Are today's Weight Watchers International, Inc. (WTW) put buyers merely locking in gains?

Oct 21, 2015 at 2:47 PM
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After nearly tripling from Friday's close to yesterday's close at $18.25, thanks to a big-time endorsement from Oprah Winfrey, the shares of Weight Watchers International, Inc. (NYSE:WTW) are on a diet today (sorry). The stock was last seen 8.3% lower at $16.73, and it looks like some speculators are either betting on or hedging against a retreat into single-digit territory.

Ahead of the bell today, WTW sported a 14-day Relative Strength Index (RSI) of 92 -- in overbought territory, suggesting today's breather may have been in the cards. That could be why traders are seemingly buying to open January 2016 10-strike puts today -- the most active option thus far.

Backing up, WTW options volume is running at five times the average intraday pace, though puts are outnumbering calls. "Vanilla" bears who bought to open the January 2016 10-strike puts at a volume-weighted average price (VWAP) of $0.78 will profit if WTW sinks beneath $9.22 (strike minus VWAP) by the close on Friday, Jan. 15, when the options expire. If the buyers are WTW shareholders, however, their primary goal is for WTW to resume its uptrend; the puts just lock in an acceptable exit price ($10 per share), should the equity take a steep turn for the worse. 

Since yesterday, the equity's Schaeffer's put/call open interest ratio (SOIR) jumped from 1.69 to 2.19. In other words, puts now more than double calls, among options expiring within three months. This ratio registers in the 76th percentile of its annual range, implying that short-term traders are more put-biased than usual.

However, that doesn't necessarily mean that bearish bets are heating up. In fact, the deep out-of-the-money December 5 and 6 puts saw the biggest open interest additions since Monday, but a healthy portion of the 6-strike puts were sold to open. What's more, WTW's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has plummeted to 2.43 from an annual high of 29.94 on Friday, suggesting buyers are easing up on puts.

Outside of the options pits, more than a few short sellers likely got burned by Weight Watchers International, Inc.'s (NYSE:WTW) rapid-fire ascent. Prior to the Oprah surge, short interest accounted for a whopping 57% of WTW's total available float, representing more than three weeks' worth of pent-up buying demand, at the equity's average pace of trading.

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