Weight Watchers International, Inc. (WTW) Bears Eye Another January Meltdown

Options bears could be paying a hefty price to bet against Weight Watchers International, Inc. (WTW)

Dec 29, 2016 at 3:08 PM
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It's been an ugly year for Weight Watchers International, Inc. (NYSE:WTW), despite the high-profile involvement of Oprah Winfrey in the company's key campaigns. In fact, recent investor excitement over Oprah's announcement she lost 40 pounds on the program fizzled out quickly, with the shares being rejected at the 200-day moving average -- a level that previously shut down WTW in November. Though up 0.8% at $11.49 today, the stock is approaching a 50% year-to-date deficit, and traders have been busy betting on the bleeding to continue.

Bearish sentiment is particularly evident in WTW's options pits, where speculators have been scooping up long puts over calls at near-extreme rates. In fact, the equity's 50-day put/call volume ratio of 1.43 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits just 1 percentage point shy of a 12-month peak.

This preference for puts is also echoed among short-term traders. WTW holds a Schaeffer's put/call open interest ratio (SOIR) of 1.83, indicating put open interest nearly doubles call open interest among options set to expire in three month or less. What's more, this ratio ranks higher than 87% of the past year's readings. Digging deeper, peak open interest among all WTW options currently resides at the out-of-the-money January 2017 9-strike put, where data from the major exchanges confirms the majority of positions were bought to open.

It looks like speculators may be paying a pretty penny for these bearish bets, too. WTW currently holds a Schaeffer's Volatility Scorecard (SVS) of 2, indicating the options market has vastly overpriced the security's ability to make big moves on the charts over the past 12 months.

Pessimism runs deep outside the options arena, as well. In fact, nearly 56% of WTW's available float is currently wrapped up in short interest, after an increase of 10% during the most recent two-week reporting period. Moreover, these bearish bets account for a whopping four weeks' worth of trading, at the stock's average daily volumes.

Considering the strength of the bearish sentiment toward WTW right now, it may be tempting for contrarians to pick up bullish positions before New Year's -- banking on resolution-makers to pad the company's bottom line. But given the stock's history, this doesn't appear to be the wisest idea. In fact, the month of January has been no friend at all to Weight Watchers International, Inc. (NYSE:WTW) recently. Over the past three years, the equity has ended every January lower, averaging a loss of nearly 32% for the month.

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