Weight Watchers International, Inc. WW shares traded lower by 1% on Tuesday ahead of the company’s second-quarter earnings report expected out after the market close, and at least one large option trader is betting on an earnings beat from the weight loss giant.
The Trade
On Tuesday, Benzinga Pro subscribers received two options alerts related to unusually large Weight Watchers option trades.
At 12:57 p.m. ET, a trader sold 2,233 Weight Watchers put options with a $20 strike price expiring on Friday at the bid price of $1. The trade represented a bullish bet worth $223,200 that Weight Watchers shares will be trading above $19 by the end of the week.
At 1:21 p.m. ET, a trader sold 1,622 Weight Watchers put options with a $22 strike price expiring on Friday at the bid price of $1.751. The trade represented a bullish bet worth $284,012 that Weight Watchers shares will be trading above $20.25 by the end of the week.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest sizes of the two trades based on institutional standards, they are likely not hedges.
Earnings Beat Imminent?
Given the expiration date of the puts sold is the end of the week, the option traders are most certainly making a play on the company’s earnings report. Weight Watchers has a long history of volatility. According to Optionslam.com, Weight Watchers’ seven-day implied movement based on the weekly options market is 17.5%.
A 17.5% range based on Tuesday’s trading price of either $17.33 to the downside or $24.69 to the upside within a week’s time.
While selling out-of-the-money puts isn’t the most high-conviction sign of an earnings beat, it seems highly unlikely the seller is expecting an earnings miss. Weight Watchers traders will be watching the option market closely for any additional large trades heading into Tuesday’s close.
The stock traded around $21.21 per share at time of publication.
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