Downside trade in Weight Watchers
David Russell | [email protected]
The weight-loss company has burned investors several times in the last year, gapping violently lower after three of its last four earnings reports. The main problem has been weak attendance at its meetings.
optionMONSTER's Depth Charge monitoring system detected the purchase of 2,240 May 42.50 puts, most of which priced for $2.65. Volume was more than 5 times higher than the previous open interest at the strike, indicating that new positions were initiated.
Puts lock in the price where investors can sell shares, which gives them a strong inverse correlation to the stock. If it falls just 10 percent to $38, they stand to earn a profit of more than 60 percent. (See our Education section for more on how bulls and bears can harness the leveraging potential of options.)
WTW rose 0.5 percent to $42.38 yesterday but has lost more than 40 percent of its value in the last year. The shares are now close to a key level that's been support several times since 2005, which could be leading some chart watchers to expect a major collapse if it gives way.
Overall option volume was 7 times greater than average in the session, with puts accounting for more than 80 percent of the total.