Weight Watchers Options Traders Buy Pre-Earnings Calls

Stock and options volume explode on Weight Watchers International, Inc. (NYSE:WTW) ahead of earnings

Feb 28, 2017 at 1:05 PM
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Weight Watchers International, Inc. (NYSE:WTW) is trading up 7.8% at $14.11, amid a positive earnings reaction for fellow weight loss specialist NutriSystem Inc. (NASDAQ:NTRI). WTW will take its own turn in the earnings confessional after tonight's close, and ahead of the scheduled event, both stock and options volume is accelerated. At last check, 3.8 million WTW shares have changed hands -- on track to settle in the 98th annual percentile -- while more than 13,500 options are on the tape, six times what's typically seen at this point in the session.

Most of today's action is occurring on the call side, with calls outpacing puts by a 2-to-1 margin. This echoes the withstanding trend, with 50,318 calls currently outstanding -- in the elevated 86th annual percentile -- versus 42,386 puts, higher than just 38% of comparable readings taken in the past year. Drilling down on the action at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 8.74 WTW calls have been bought to open for each put in the last two weeks, a ratio that's ranked in the 72nd percentile of its annual range.

It appears a number of these speculators targeted the weekly 3/3 13-strike call, which has seen one of the biggest increases in open interest of all WTW strikes in recent weeks. Trade-Alert indicates a significant amount of buy-to-open activity here, indicating options traders are eyeing a bigger move north of $13 by this Friday's close, when the weekly series expires.

What's more, some call buyers may have an ulterior motive. Specifically, 28.5% of WTW's float is sold short, meaning calls may have been purchased by shorts to hedge against any earnings-induced upside. Should the shares of WTW continue to move higher in tomorrow's trading, there's certainly the potential for a round of short-covering. In fact, given how heavily shorted WTW is, it would take more than two weeks to cover these bearish bets, at the stock's average pace of trading.

Looking back over the past eight quarters, WTW has swung an average of 16.8% in the session subsequent to reporting, regardless of direction. This time around, the options market is pricing in an even bigger swing of 21.3%. A move to the upside would only extend the stock's 2017 momentum, sparked by a strong marketing campaign featuring Weight Watchers International, Inc. (NYSE:WTW) shareholder Oprah Winfrey. Year-to-date, WTW stock has added 23.6%, and earlier hit its highest perch since June 9.

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