Analysts, Option Buyers Hot for Mattel, Inc. (MAT)

Mattel, Inc. (MAT) calls are popular after a bullish note from B. Riley

by Andrea Kramer

Published on Apr 6, 2015 at 11:25 AM
Updated on Apr 20, 2015 at 5:09 PM

Toy titan Mattel, Inc. (NASDAQ:MAT) is up 4.8% at $23.73 this morning, thanks to an upgrade to "buy" from "neutral," as well as a price-target hike to $27.25 from $26, at B. Riley. The analysts waxed optimistic on new CEO Christopher Sinclair, who has a "clear game plan" to quickly turn MAT around. (BMO, meanwhile, trimmed its price target on the stock to $25 from $28.) What's more, the options crowd is gambling on even more upside for MAT, judging by early action in the options pits.

MAT calls are trading at five times the average intraday pace, with buy-to-open activity detected at the April 24 call. By purchasing the calls to open, the buyers expect MAT to topple $24 within the options' lifetime. In light of the stock's jump, delta on the call surged to 0.45 from 0.25 at Thursday's close, implying a roughly 45% chance of the contract expiring in the money on Friday, April 17 -- just a day after the company reports first-quarter earnings.

Meanwhile, longer-term bulls are scooping up the January 2016 25-strike call -- the most active thus far. These calls will move into the money if MAT climbs atop $25 by the close on Friday, Jan. 15, when the long-term options expire.

Today's affinity for long calls merely echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). MAT sports a 50-day call/put volume ratio of 1.27 -- higher than 88% of all other readings from the past year. In other words, option buyers have shown a greater-than-usual fondness for MAT calls over puts during the past 10 weeks.

However, short interest grew 14.6% during the past two reporting periods, and now accounts for nearly 10% of MAT's total available float. It would take over eight sessions to buy back these bearish bets, at the security's average pace of trading. Against this backdrop, it's possible that some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to hedging activity among the shorts.

Whatever the motive, speculators are paying a relatively pretty penny for short-term MAT options. The stock's Schaeffer's Volatility Index (SVI) of 42% stands higher than two-thirds of all other readings from the past year.

While Mattel, Inc. (NASDAQ:MAT) is higher today, the equity has underperformed the S&P 500 Index (SPX) by nearly 26 percentage points during the past three months. In fact, the stock touched a four-year low of $22.32 on Thursday. Plus, if recent history is any indicator, MAT could tick lower after earnings; following its last five earnings reports, the stock has shed an average of 4.5% in the subsequent session.

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