Weight Watchers Options Volume Spikes Ahead of Earnings

The stock is trading lower today on post-earnings headwinds for NTRI and VSI

Feb 27, 2018 at 1:44 PM
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Weight Watchers International, Inc. (NYSE:WTW) will report fourth-quarter earnings after tonight's close, and ahead of the event, the stock is trading down 2.7% at $69.69 on negative earnings reactions for sector peers NutriSystem (NTRI) and Vitamin Shoppe (VSI). WTW shares have a positive history of post-earnings price action, though, having closed higher the next day in six of the past eight quarters. On average, the equity has swung 14.5% in the session after earnings, regardless of direction, with the options market pricing in a bigger move of 22.4% for tomorrow's trading.

Options traders are blasting WTW stock in the last few hours leading up to the weight loss specialist's results, with 7,416 contracts traded so far -- three times what's typically seen at this point in the day. While most of the action has centered at the January 2019 100-strike call and appears tied to stock, shorter-term speculators could be selling to open weekly 3/2 58.50-strike puts, hoping to profit on a post-earnings volatility crush.

More broadly, the action leading up to Weight Watchers earnings appears to be more bearish. Amid relatively low absolute volume, the weekly 3/2 55- and 61-strike puts have seen some of the biggest increases in open interest over the past two weeks, and data from Trade-Alert points to buy-to-open activity. If this is the case, options traders are betting on WTW plunging below the strike prices by expiration at this Friday's close.

However, given Weight Watchers' impressive run up the charts, part of the put buying at such deep out-of-the-money strikes could be a result of shareholders initiating an options hedge against any unexpected downside for the Oprah-backed stock. Year-over-year, WTW shares have surged more than 434%, and hit a five-year high of $77.19 on Feb. 20. And while the equity is trading lower today, it's found a foothold atop its 20-day moving average -- a trendline that contained an early February pullback, as well.


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