3M Option Bears Emerge Ahead of Earnings

MMM shares just flashed a historically bearish signal

Digital Content Manager
Jan 28, 2019 at 3:10 PM
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In the wake of Caterpillar's (CAT) earnings miss, fellow industrial name and Dow stock 3M Co (NYSE:MMM) is also taking a hit. Ahead of its fourth-quarter earnings release, slated for tomorrow morning, 3M stock is down 1.5% at $192.90. MMM has attempted to rebound after bottoming out at a nearly two-year low of $176.87 on Dec. 26, but just flashed a technical signal that, if past is precedent, could mean even more headwinds for the security in the short term.

3M just came within one standard deviation of its 80-day moving average, specifically, after a lengthy stretch below the trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, this signal has flashed four times in the past three years, with MMM stock averaging a one-week loss of 3.2%, and lower a week later every time.

MMM Jan 28

MMM’s earnings reactions have been mixed over the past eight quarters, with the stock moving higher the day after earnings half the time. After the blue chip’s last earnings report in October, though, MMM dropped 4.4% in the subsequent session. On average, the equity has moved 3.4% the day after earnings, looking back two years, regardless of direction. This time around, the options market is pricing in a bigger-than-usual 6.5% move for MMM. 

As far as direction, options traders are establishing bearish bets ahead of tomorrow's earnings. The 10,000 puts that have changed hands during intraday trading represents roughly twice the norm and nearly double the number of calls traded. Digging deeper, it appears some speculators are buying to open the weekly 2/1 192.50-strike put, to bet on more downside for MMM through the end of the week.

Today's appetite for puts is just more of the same for the industrial stock. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.43 is in the 84th percentile of its annual range, pointing to a healthier-than-usual appetite for bearish bets of late.

Analyst sentiment over the blue chip also leans bearishly, with four calling 3M a "buy" or better, compared to seven "hold" or worse ratings. Likewise, the consensus 12-month target price of $202.79 is relatively low -- representing only a 5% premium to current levels. 


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