Options Volume Pops as Weight Watchers Stock Heads Toward Best Year Yet

One WTW trader today is betting on a big swing to start 2018

Dec 22, 2017 at 1:34 PM
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Weight Watchers International, Inc. (NYSE:WTW) is flying high today, with some speculating that a short squeeze may be underway. Whatever the reason, WTW shares were last seen trading up 8.7% at $51.57, and options traders are blasting the stock ahead of an onslaught of New Year's resolutions.

Roughly 6,000 calls and 3,800 puts have traded on Weight Watchers stock so far -- nearly six times what's typically seen at this point in the day, and total options volume pacing in the 94th annual percentile. Most active are the weekly 1/5 51.50-strike put and 53-strike call, with new positions being initiated at both. Diving deeper, it looks like one speculator may have initiated a long strangle with these weekly strikes to bet on a major move for the shares in the first week of 2018, regardless of direction.

More broadly speaking, options traders have been buying to open calls over puts at a quicker-than-usual clip in recent weeks, albeit amid relatively low absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), WTW's top-heavy 10-day call/put volume ratio of 5.50 ranks higher than 98% of all comparable readings taken in the past year.

While some of this may be a result of shorts hedging against more upside risk -- 25.9% of the stock's float is sold short, or 7.5 times the average pace of trading -- now is an attractive time to purchase premium on the stock. Specifically, its Schaeffer's Volatility Index (SVI) of 44% ranks in the 9th annual percentile, meaning muted volatility expectations are being prcied into these near-term contracts. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) of 99 indicates WTW has tended to exceed options traders' volatility expectations over the past year -- a potential boon to premium buyers.

Looking at the charts, Weight Watchers shares have had a standout year -- up more than 350% -- its best annual return since the equity began trading in 2001. Underscoring this impressive price action has been WTW's 120-day moving average, which served as a springboard after the stock's pullback from its Nov. 7 four-year peak of $54.47

 

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