Heavy call activity in Weight Watchers


Shutterstock photo

Weight Watchers saw heavy call activity before yesterday before issuing a mediocre earnings report after the close.

optionMONSTER's Heat Seeker tracking system detected the purchase of about 4,800 April 80 calls for $6.40 and the sale of an equal number of April 85 calls for $4 yesterday, resulting in a cost of $2.40. Volume was below open interest at the lower strike, so there are two possible interpretations for the activity.

One is that both parts were opening trades, in which case it was new bullish call spread with the potential to earn a maximum profit of 108 percent if WTW closes at or above $85 on expiration.

The other possibility is that an existing short position was rolled to the higher strike. In that case, the investor probably owns the shares and is using the options as part of a covered call strategy. Adjusting the position entitles them to collect an additional $5 of upside on their shares. (See our Education section)

WTW is down 2.95 percent to $77 in morning trading after reporting profit in line with analyst forecasts but revenue that was weaker than expected. Its guidance was also mostly below consensus. The stock has been bouncing in a range for the last year after a dramatic move higher in February 2011.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com