Medtronic PLC (MDT) Option Traders Active Amid Post-Earnings Plunge

Medtronic PLC (MDT) has dropped 4.7% following the company's earnings report

by Alex Eppstein

Published on Mar 1, 2016 at 10:50 AM

A big jump in quarterly revenue wasn't enough for Medtronic PLC (NYSE:MDT) to meet the Street's consensus estimate (though it topped the average earnings forecast). As such, the stock is selling off sharply, down 4.7% at $73.78, and options volume has gone through the roof.

Activity is red-hot -- especially on the put side of the aisle, where almost 8,000 contracts are on the tape, or 14 times the expected intraday rate. Accounting for the majority of this volume is a fresh block of 5,200 April 70 puts, though it's unclear whether the contracts were bought or sold, as the purchase price was between the bid and the ask price. On the other hand, clear-cut buy-to-open activity has been detected at the weekly 3/4 74-strike call, as short-term traders expect MDT to bounce back by week's end, when the options expire.

Call buying has been the strategy of choice for some time, according to data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the past 10 weeks, traders across those exchanges have bought to open 3.91 calls for every put, and the corresponding call/put volume ratio outstrips four-fifths of comparable readings from the last 12 months.

This optimism extends beyond MDT's options pits. In fact, 12 of 16 analysts consider the shares worthy of a "buy" or better rating, with not a single "sell" opinion on the books. Plus, just 1.1% of the stock's float is dedicated to short interest.

Technically speaking, it's been an up-and-down year for Medtronic PLC (NYSE:MDT). While the stock has rallied powerfully off its late-September lows near $64, repeated attempts to clear the $78-$79 area have come up short. With today's gap lower, MDT is testing its 80-week moving average, which has recently served as support, and hasn't been breached on a weekly closing basis since late September.

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