Another Large Earnings Swing Priced in for Toymaker

Options traders have been extremely call heavy on the struggling shares

Toy manufacturing concern Mattel, Inc. (NASDAQ:MAT) is set to report its first-quarter earnings this Thursday. MAT stock has finished lower the day after earnings in four of the past five quarters, but snapped its losing streak last time around, with a 7.9% swing higher. The stock's average post-earnings daily price move is 8.5%, looking back eight quarters. This time around, the options market is pricing in a larger-than-usual 12.5% next-day move, per Trade-Alert.

Mattel stock has suffered a more than 42% drop over the past 12 months. The toymaker has also remained under the long-term resistance of the 200-day moving average, and last month came within striking distance of nine-year lows, following liquidation plans of Toys 'R' Us. At last check, MAT was trading down 1%, at $14.57.

Surprisingly, ahead of earnings options traders have been extremely bullish. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MAT's 10-day call/put volume ratio of 12.44 ranks in the 98th annual percentile. This suggests that calls have been purchased over puts at a much faster-than-usual clip during the past two weeks.

However, short interest on MAT rose 9.1% during the past two reporting periods, and now represents 18.2% of the stock's total available float. Against this backdrop, it's possible that some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to short sellers seeking an options hedge ahead of earnings.