The shares of WW International, Inc. (NASDAQ:WTW), formerly known as Weight Watchers, are taking a beating -- down 12.5% at $17.97, fresh off a two-year low of $17.55 -- following some bearish brokerage attention. Options traders don't seem to mind, with volume running hot today, and notable bullish activity detected.
Taking a closer look at that analyst note, J.P. Morgan Securities cut its WTW price target to $12 from $14 -- representing expected downside of 41.6% to last night's close. The brokerage firm said data points to a daily active user (DAU) contraction in the first quarter, which creates downside risk to the Oprah-backed weight management firm's 2019 earnings guidance.
In reaction, WTW options are flying off the shelves, with roughly 18,000 calls and 17,000 puts on the tape -- 11 times what's typically seen at this point, and volume pacing in the 100th annual percentile. The May 20 call is most active by a mile, with more than 12,000 contracts exchanged so far.
All signs suggest these calls are being bought to open for a volume-weighted average price of $1.40. If this is the case, breakeven for the call buyers at the close on Friday, May 17, is $21.40 (strike plus premium paid). This time frame includes WW's first-quarter earnings report and its annual shareholders meeting, with both tentatively scheduled for early May.
Today's bullish bias in the options pits echoes a broader trend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), WTW's 10-day call/put volume ratio of 6.17 ranks in the 98th annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip.
Given how heavily shorted the stock is, some of this activity could be at the hands of short sellers hedging their bearish bets against any upside risk. Currently, 8.09 million WTW shares are sold short, representing 13.3% of the equity's available float, or 3.1 times the average daily volume.
Shorts have certainly been in the driver's seat on WW. The shares have shed more than 53% year-to-date, compared to a roughly 20% gain for the broader Nasdaq Composite (IXIC). And in addition to flashing a recent bear signal on the charts, the shares are now trading below a short-term floor near $20, suggesting this round-number level could now switch roles to act as resistance.
