Weight Watchers Rally Could Pick Up Steam, If Past is Prologue

Oprah-endorsed Weight Watchers (WTW) has been seemingly unstoppable lately. WTW shares today touched a new record high of $105.73, and were last seen trading up 4.1% at $104.49. In fact, the security has more than tripled in the past year, and is set to wrap up June with a 39% gain. However, despite the fitness stock’s momentum, WTW options are attractively priced — and if recent history is any indicator, now could be the time for bulls to strike.

The security’s Schaeffer’s Volatility Index (SVI) of 41.2% is higher than just 2% of all other readings during the past year, pointing to extremely low volatility expectations being priced into short-term options. Since 2008, there have been just four other times at which Weight Watchers stock was exploring annual highs while its SVI was near annual lows. After those instances, the shares went on to rally an average of 15.99% a month later, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. From current levels, that would place WTW around $121 — deeper into uncharted territory.

Meanwhile, WTW has racked up a Schaeffer’s Volatility Scorecard (SVS) of 89 out of 100. This indicates the stock has easily exceeded options traders’ volatility expectations during the past year — another enticing factoid for would-be premium buyers.

While most analysts are already in the bulls’ camp, not everyone is convinced of the stock’s strength. Nearly 20% of Weight Watchers’ total available float is dedicated to short interest. At WTW’s average pace of trading, it would take nearly a week to buy back these bearish bets — plenty of fuel for a short squeeze to propel the shares even higher.

Traders expecting more short-term upside from Winfrey’s WTW could consider the weekly 7/13 100-strike call, which was last asked at $7.50. Buyers of the call will begin to profit if WTW moves north of $107.50 (strike plus premium paid) — just a 2.9% hike from current levels — by the close on Friday, July 13, when the options expire. Meanwhile, the most at risk is the premium paid for the contracts.