Option Bears Bet On Mattel, Inc. (MAT) to Slide After Earnings

Put option buyers are targeting Mattel, Inc. (MAT) as the stock trades lower ahead of tonight's earnings report

by Kirra Fedyszyn

Published on Feb 1, 2016 at 11:51 AM
Updated on Feb 1, 2016 at 11:58 AM

Toy maker Mattel, Inc. (NASDAQ:MAT) is trading 4.7% lower at $26.30 ahead of its fourth-quarter earnings report, due after the market closes tonight. Meanwhile, put options are trading at an unusually rapid clip -- 11 times their typical intraday rate, in fact, with roughly 10,000 puts exchanged so far. In particular, it looks like many pre-earnings MAT bears are targeting the February 22 put, where over 6,000 contracts have already traded.

Many of these out-of-the-money MAT puts were bought to open, according to data from the International Securities Exchange (ISE) -- pointing to expectations for a post-earnings sell-off in Mattel shares. And the options market is pricing in a post-earnings move of about 12%, compared to MAT's average one-day price swing of 4.7% over the last eight quarters.

Pessimism among option traders is nothing new for the security, which has a 10-day put/call volume ratio of 2.82 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 91% of all readings in the past year, as speculators have rarely shown a greater preference for puts over calls.

MAT has been trending higher since hitting a five-year low of $19.45 in early October, and has established support at both its 50-day and 80-day moving averages in recent months. In fact, the shares have outperformed the S&P 500 Index (SPX) by 20 percentage points over the past two months.

Still, six out of 11 analysts rate the equity a "hold" or worse. And while short interest on MAT has slipped by 14% during the two most recent reporting periods, nearly 16% of the stock's available float remains tied up in these bearish bets. At Mattel, Inc.'s (NASDAQ:MAT) average daily trading volume, it would take almost two weeks to buy back all these shares. In other words, there's plenty of sideline cash to fuel a serious rally, especially if tonight's earnings beat estimates (and impress skeptical analysts).

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