Schaeffer's Trading Floor Blog

Option Bears Maul T-Mobile US Inc (TMUS) Despite Solid Technicals

TMUS is scheduled to report fourth-quarter earnings next Tuesday

by 2/18/2014 2:37 PM
Stocks quoted in this article:

Despite a more than 50% year-over-year gain -- and ongoing rumors about a potential buyout bid from Sprint Corporation (NYSE:S) -- T-Mobile US Inc (NYSE:TMUS) has been attracting put buyers of late. At the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), the wireless issue has seen 13,581 puts bought to open during the last five sessions, compared to 3,974 calls. The result is a top-heavy put/call volume ratio of 3.42.

Expanding the scope to include 10 days' worth of data -- and information from the NASDAQ OMX PHLX (PHLX) -- confirms the recent surge in bearish betting. Specifically, TMUS' 10-day ISE/CBOE/PHLX put/call volume ratio checks in at 1.09 -- just 9 percentage points from a 12-month high. In other words, traders have rarely scooped up puts over calls at the pace they've shown in recent weeks.

Accordingly, Schaeffer's put/call open interest ratio (SOIR) for TMUS stands at 0.74. While from an absolute perspective, this ratio indicates near-term call open interest outweighs put open interest, the SOIR sits in the 98th percentile of its annual range. In other words, put open interest has been greater (relative to call open interest) just 2% of the time during the previous year, among options set to expire within three months.

Right now, significant levels of put open interest reside at T-Mobile's underfoot February 31 strike. The majority of these contracts were bought to open, meaning they could translate into support in the short term.

Despite pessimism among option traders, the stock sports an impressive technical track record, as alluded to earlier. In fact, during the past three months, TMUS has outperformed the broader S&P 500 Index (SPX) by nearly 17 percentage points. What's more, the shares recently bounced off of their ascending 80-day moving average, and now -- at $31.37 -- find themselves sitting just atop their 50-day trendline. Should the option bears start to unwind their positions in light of this positive chart movement, a potential contrarian boon could be in store.

Of course, the wild card in all of this is T-Mobile US Inc's (NYSE:TMUS) fourth-quarter earnings report, which is due out before the open next Tuesday, Feb. 25. Historically, the company hasn't fared well in the confessional, missing analysts' consensus per-share profit estimates in each of the last four quarters. In fact, last time around, the shares shed roughly 7% in the week after the announcement.


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