Heavy Bearish Western Union Put Buying Ahead Of Earnings - Western Union (NYSE:WU)

The Western Union Company WU has been a top performer in the last year, gaining gaining 50.4% overall.

However, a series of unusually large option trades this week suggest at least one large trader thinks Western Union will be unable to deliver additional upside.

The Trades

On Tuesday and Wednesday, Benzinga Pro subscribers received five option alerts related to unusually large trades of Western Union options. Here are a handful of the biggest:

On Tuesday at 11:00 a.m., a trader bought 1,056 Western Union put options with a $28 strike price expiring on Aug. 21 near the ask price at $2.15. The trade represented $227,040 bearish bet.
On Tuesday at 1:38 p.m., a trader bought 1,250 Western Union put options with a $27 strike price expiring on Feb. 21 near the ask price at 63.7 cents. The trade represented $79,625 bearish bet.
On Tuesday at 3:28 p.m., a trader bought 1,080 Western Union put options with a $26 strike price expiring on Feb. 21 near the ask price at 30 cents. The trade represented a $32,400 bearish bet.
On Wednesday at 9:41 a.m., a trader bought 1,250 Western Union put options with a $27 strike price expiring on Feb. 21 near the ask price at 49 cents. The trade represented $61,250 bearish bet.
Less than a minute later, a trader bought 947 Western Union put options with a $28 strike price expiring on Feb. 21 near the ask price at 90 cents. The trade represented $85,230 bearish bet.

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 small size of the largest Western Union trades by institutional standards, it is unlikely the trades represented institutional hedging.

Earnings Miss Ahead?

Given the distinct lack of major news from Western Union this week, it’s likely the option traders are simply positioning ahead of the company’s earnings report due on Feb. 11.

The last commentary from Wall Street on Western Union came back in December when BTIG Research reiterated its Buy rating and raised its price target to $31. Since that time, the stock is up another 2.2%.

The rest of Wall Street isn’t quite so bullish that the Western Union rally will continue. Among the 15 analysts that cover the stock, Western Union has only one Buy rating and an average price target of just $25.

Benzinga’s Take

Four out of the five Western Union put purchases this week are for contracts that expire 10 days after earnings. However, the most concerning trade for longer-term Western Union may be the August $28 puts with a break-even price of $25.85, suggesting at least 5.8% downside over the next seven months.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

How To Read And Trade An Options Alert

Photo credit: Richard Allaway, Flickr

Market News and Data brought to you by Benzinga APIs