Mattel China Partnership Provokes Bullish Options Traders

Mattel, Inc. (MAT) stock has struggled over the long term, but options traders have been targeting calls

Feb 17, 2017 at 12:10 PM
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Mattel, Inc. (NASDAQ:MAT) is up on news that it's formed a strategic partnership with Babytree, a China-based parenting website. With the shares 1.1% higher at $25.96, options traders have placed bullish short-term bets on the shares -- with 37,000 calls already on the tape, 21 times the usual intraday amount, and a new annual high.

Drilling down, the out-of-the-money March 30 call is, by far, the most popular strike. According to Trade-Alert, this is being driven by one options trader who bought to open 15,000 contracts earlier for about $375,000 ($0.25 premium paid * number of contracts * 100 shares per contract). For these calls to land in the money by March expiration, MAT shares will need to close their late-January bear gap, triggered by a poor earnings report.

On the one hand, the stock could have trouble muscling atop the $30 level, given potential round-number resistance. Not to mention, MAT's 200-day moving average -- which has contained breakout attempts since November -- is descending into that neighborhood, potentially reinforcing the speed bump.

On the other hand, the shares could get a boost on another round of takeover chatter. Unsubstantiated M&A rumors cropped up on Wednesday, sending MAT higher. Plus, with the company aggressively courting Chinese consumers, sales and earnings growth could get a much-needed jolt in upcoming quarters -- also potentially translating into stock gains.

Long term, MAT has struggled mightily. Despite sharp advances in the broader market, the toy stock has surrendered 17.5% of its value on a year-over-year basis. Plus, the shares aren't far from their annual low at $25.17, touched earlier this month.

Yet, as the aforementioned call buyer demonstrates, options traders have been keeping the faith. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio is a top-heavy 4.14 -- outstripping four-fifths of readings from the last year. Echoing this, short-term options traders are very call-focused, per Mattel, Inc.'s (NASDAQ:MAT) Schaeffer's put/call open interest ratio (SOIR) of 0.37, registering in the low 9th percentile of its annual range.

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