Option Bulls in Good Shape After Weight Watchers International, Inc. (WTW) Earnings

Weight Watchers International, Inc. (WTW) is on track for its biggest gain in roughly eight months, following an earnings beat

Nov 4, 2016 at 10:51 AM
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Options traders are hungry for Weight Watchers International, Inc. (NYSE:WTW) this morning, with the stock surging on earnings. Specifically, shares of the weight-loss firm are up 11.7% at $11.17 -- on track for their largest daily percentage gain since March -- after its per-share profit topped the Street's consensus estimate, bolstered by a 10% quarterly jump in membership. Moreover, WTW announced plans to better incorporate media mogul and investor Oprah Winfrey (subscription required) in the company's marketing plans.

As alluded to, WTW options are trading at a brisk pace -- especially on the call side of the aisle. While intraday volume is light on an absolute basis, calls are changing hands at three times the expected clip, and account for nine of the 10 most active strikes.

This is business as usual for Weight Watchers options traders. During the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 12.36 calls for every put. What's more, this ratio ranks in the bullishly skewed 94th percentile of its annual range. Not to mention, the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) is 0.57, with near-the-money calls nearly doubling puts in the November series.

With WTW now hovering above $11, it's worth noting that the heaviest accumulation of front-month open interest is at the November 11 call. Data from the major exchanges suggests a mix of buy- and sell-to-open activity here. Suffice it to say, the buyers are in good shape -- with the option now in the money -- while the sellers may find themselves on the ropes.

That said, not every WTW call buyer is necessarily bullish. After all, roughly three-fifths of the stock's float is sold short, which -- at the equity's average daily trading levels -- would take more than four weeks to cover. In other words, it's possible short sellers may have been buying out-of-the-money calls to hedge against a major upside move -- like the one we're seeing today.

This theory is all the more likely, considering how poorly Weight Watchers International, Inc. (NYSE:WTW) has performed over the long haul. Even after accounting for this morning's bullish gap, the stock has lost more than half its value in 2016.

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