Mattel Stock's Post-Earnings Pop Attracts Options Bulls

Options traders are targeting more short-term gains this morning

Digital Content Manager
Oct 23, 2020 at 9:49 AM
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The shares of Mattel Inc. (NASDAQ:MAT) are up 12% at $13.84 at last check, on track for its best single-session gain since March 23. This comes after the toy giant reported third-quarter earnings of $0.95 per share, notably higher than Wall Street's estimate of $0.39 per share, as well as a revenue beat. Mattel attributed the positive results to a surprise rise in quarterly sales, as parents turned to playsets and games to keep children entertained during the pandemic. In turn, Mattel stock earned an upgrade from Davidson to "buy" from "neutral" and no less than seven price-target hikes, including one from JP Morgan to $20 from $17.50.  

On the charts, the security has been carving a channel of higher highs since late May, more than doubling off its March 23 all-time-low of $6.53. The ascending 60-day moving average has been a constant source of support throughout this recovery journey, though the stock still has a little further to go before it reaches this year's January pre-pandemic high near the $15 level. Longer term, MAT sports a 26.8% year-over-year lead. 

Short sellers have been hitting the exits lately. Short interest is down 18.2% in the last two reporting periods. However, the 17.76 million shares sold short still make up a substantial 5.1% of the stock's available float. At the stock's average pace of trading, it would take over a week to buy back these bearish bets, a sizable amount of buying power that could keep the wind at MAT's back. 

The options pits are leaning far more optimistic, with calls popular. Mattel stock sports a 50-day call/put volume ratio of 6.32 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) that sits in the high 88th percentile of its annual range. This suggests a healthier-than-usual appetite for bullish bets of late.

Today, call traders are coming out of the woodwork in droves. In just the first half hour of trading, 14,000 MAT calls have changed hands; 42 times the average intraday amount and volume pacing for the 100th percentile of its annual range. Leading the charge is the weekly 10/13 and 10/30 14-strike calls, with new positions being opened at each.

For those wanting to ride MAT's next wave, options may be the best play amid a post-earnings volatility crush. The stock's Schaeffer's Volatility Index (SVI) of 59% sits higher than just 5% of readings in its annual range, suggesting short-term options are pricing in relatively low volatility expectations.

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