Wayfair Inc (W) Option Volume Surges After 'Quite Strong' Holiday Sales

After optimistic remarks from Wayfair Inc's (W) CEO, option players are drilling down on the e-tail stock

Jan 10, 2017 at 3:24 PM
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Wayfair Inc (NYSE:W) is flying high today, following optimistic remarks from its CEO, who said the company's overall holiday sales were "quite strong," further highlighting the recent divide between the strong holiday season in the e-tail sector and struggling brick-and-mortar stores. Also boosting W is a reiteration from Wedbush of its "outperform" rating, with analysts "enthused by the company's near- and long-term prospects." As W rides these tailwinds higher, option players are picking up calls at an unusual clip.

W is up 9.5% at $41.67 so far today. The shares are on pace to eclipse their 200-day moving average for the first time since September, which rejected a rally attempt in December. W has now added more than 17.5% to start 2017.

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W's options are trading at four times their average intraday pace, with calls outpacing puts 2-to-1, and call volume on pace to end in the 94th percentile of its annual range. Meanwhile, total option volume is set to finish in the 96th percentile of its annual range. Drilling down, the most active option is the front-month January 2017 42.50-strike call, followed by the weekly 1/13 40-strike call with buy-to-open activity detected at both strikes. These option buyers are betting W will extend its gains in the short term.

Widening the scope, today's appetite for calls isn't out of the norm. W's 10-day call/put volume ratio at the the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows nearly two calls bought to open for every put over the last 10 days of trading, although volume has been light on an absolute basis. In fact, total option open interest is just 5 percentage points from an annual low, and the May 35 put is the most populated strike, with just over 1,100 contracts outstanding.

However, not everyone is on W's bullish side. Short interest accounts for more than 30.6% of W's float. At the stock's average pace of trading, it would take 13.5 days to cover these shorted shares. If W maintains its recent momentum, some of these short sellers could exit their positions, creating a short squeeze that could boost W's shares even higher. Another possible catalyst for further momentum would be a round of bullish analyst attention. Currently, 10 of the 15 brokerage firms weighing in on Wayfair Inc. (NYSE:W) rate the shares a tepid "hold." This leaves plenty of room for upgrades to lure more buyers, should W extend its rally.

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