Options Bears Blast China Mobile Stock After FCC Rejection

Plus, China headwinds are weighing on the telecom name

Managing Editor
May 9, 2019 at 2:15 PM
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China Mobile Ltd. (NYSE:CHL) is in the news today, after the Federal Communications Commission (FCC) voted unanimously to deny the Chinese state-owned firm's application to provide U.S. telecommunication services. The FCC expressed concern that the Chinese government could use the approval to spy on the U.S. government.

The decision comes amid increasingly tense U.S.-China trade relations, and has sent CHL stock down 1% to trade at $46.31. Since a March 20 annual high of $55.84, the shares have shed 17%, guided lower by their descending 10-day moving average. Plus, CHL is about to rack up its eighth straight weekly loss. 

Daily Stock Chart CHL

Options traders have come out of the woodwork today in droves, though volume is limited on an absolute basis. Specifically, more than 2,100 CHL put options have changed hands today -- 15 times the average intraday amount and 31 times the number of calls traded. Leading the charge is the December 42.50 put, with new positions likely being purchased. This indicates put buyers expect China Mobile to sink to levels that haven't been seen since March 2014 by year's end.

There's ample room for a shift in sentiment. The majority of brokerages in coverage rate CHL a "strong buy," while its consensus 12-month price target sits all the way up at $55.53. Plus, short sellers have been hitting the bricks, with short interest down 38% in the most recent reporting period to 1.73 million shares, the lowest since September and a slim 0.2% of its total available float. Downgrades and/or a fresh round of short selling could ramp up pressure on CHL.

 

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