Options Bull Targets Big Summer Rally for 3M Stock

Trade war headwinds are weighing on MMM

Managing Editor
May 7, 2019 at 1:45 PM
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Dow stock 3M Co (NYSE:MMM) is lower with the broader market today, likely due to China trade war jitters that have escalated in the last few days. At last check, MMM was down 1.9% to trade at $179.64 -- set for its lowest close since its December bottom of $176.87 -- but options traders have surfaced with a big focus on bullish calls. 

Specifically, nearly 31,000 MMM call options have changed hands today -- four times the average intraday amount and volume on pace for an annual high. Leading the charge by far is the July 200 call, with new positions likely being opened. Digging deeper, it appear one trader bought to open a 12,400-contract block for an initial cash outlay of $1.22 million (number of contracts * $0.99 premium paid * 100 shares per contract.)

This is the most the call buyer stands to lose, should MMM settle below the strike price at the close on Friday, July 19, when front-month options expire. Profit, meanwhile, will accumulate on a move above breakeven at $200.99 (strike plus premium paid) -- a level not toppled on a closing basis since April 24, before a subpar quarterly earnings report sent MMM gapping lower.   

The good news for that brave trader is that MMM's 14-day Relative Strength Index (RSI) was docked at 22 at Monday's closing bell -- well into oversold territory, leaving the security well-positioned to bounce in the short term. Plus, the blue chip's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) stands at a lofty 2.83, indicating near-the-money puts outweigh calls among options in the front-month series. This could point to potential options-related support in the short term.

Daily Stock Chart MMM

 

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