Love Mattel (MAT)? Here’s an Options Roadmap to Accelerate Your Profitability

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While internationally renowned toy manufacturer Mattel (MAT) attracted questions about its viability following warnings about holiday toy sales, MAT stock is attempting to put those worries behind. After encountering some early jitters this year, the company’s market value started to recover in the back half of January. Notably, in the trailing month, shares swung up more than 7%.

Of course, much of the positive sentiment also revolves around its largely impressive earnings performance. For the fourth quarter of fiscal year 2023, Mattel posted earnings per share of 42 cents. This figure handily beat the analysts’ consensus target of 29 cents. As well, gross margin on a GAAP basis reached 48.8%, up from 43.1% in the same quarter of the prior year.

To be fair, the earnings print wasn’t comprehensively bullish. As great as the per-share profitability print was, the revenue haul regrettably came up short. In Q4, Mattel generated sales of $1.62 billion, missing the $1.64 consensus view among analysts.

Still, Mattel’s Chairman and CEO struck an upbeat tone. “2023 was a milestone year for Mattel. We extended our leadership in our key toy categories and gained significant share overall, achieved extraordinary success with the Barbie movie, and further strengthened our financial position.”

Tricky circumstances lie ahead, which is why Wall Street isn’t exactly confident. Over the next 12 months, it expects sales to grow 2.7%, a deceleration from this quarter. That said, other factors – including a gangbuster U.S. Q4 GDP print and a steamrolling labor market – could bolster MAT stock. If anything, the underlying optimism may give confidence to consumers to spend on discretionary items like toys and games.

For those who believe in the upside narrative, going long the underlying security represents the intuitive course of action. However, going the options route could potentially accelerate your returns.

Options Roadmap for MAT Stock

On Monday, MAT stock ranked among the top names regarding unusual stock options volume. Specifically, total volume clocked in at 40,797 contracts against an open interest reading of 74,198 contracts. Further, the difference between the volume of the day compared to the trailing-month average metric came out to 783.82%.

Breaking down the details, call volume landed at 27,323 contracts while put volume reached 13,474. This pairing yielded a put/call ratio of 0.49, on paper implying more bullish activity. Still, what’s interesting is that options flow data shows heavy (possibly) institutional interest in the Feb 16 ’24 19.00 Put, which saw a total premium paid of $96,883.

That may be a clear warning sign that not everyone believes that MAT stock can continue moving northward. However, the analyst consensus comes in as a moderate buy, breaking down as seven strong buys and four holds. If you believe in the positive narrative, then the below chart serves as a possible guideline for delving into the derivatives market.

Using Barchart’s premium tools, I came up with an “options roadmap” for MAT stock, juxtaposing the average analysts’ consensus target of $22 and the high-side target of $25 against three of arguably the most intriguing call options available, based on Barchart’s unusual options activity. By focusing on this particular screener, we can isolate what the smart money is doing.

For full disclosure, the price targets come from TipRanks, which presents more conservative data than Barchart. In other words, I’m giving you closer to a worst-case scenario so that you have a better chance of being pleasantly surprised.

For more risk-averse speculators, the Jul 19’24 19.00 Call may be the most ideal. For one thing, the bid-ask spread as represented by the midpoint price lands at 5.26%. Moreover, the price tag of $191 ($1.91 multiplied by 100 shares) is quite attractive. As well, open interest stands at 3,048 contracts, implying broad interest.

For an amplified risk-reward profile, traders may go for the Jul 19 ’24 21.00 Call. Here, the main difference is that it’s out the money (OTM) and might not reach the $21 strike price prior to expiration, based on the average analyst target. However, if we assume the high-side target, then it’s possible that the $21 call could be at the money (ATM) in June. Still, the wide spread of 14.56% is something to consider.

Lastly, the highest-risk, highest-reward idea in this comparison is the Jan 17 ’25 25.00 Call. With 11 mounts to go before expiration, it might fall just short of being ATM based on the high-side target. However, at $94, it’s the cheapest option. Interestingly, the spread lands somewhere in the middle at 11.11%.

Risk Factors to Consider

Of course, trading options comes with significant risks. For one thing, the fundamental narrative might not pan out. If we encounter an economic slowdown, that could be lights out for a discretionary play like MAT stock. Plus, other elements such as the high level of indebtedness should give investors pause.

As for the options roadmap, I’m assuming a linear trendline. Of course, as you know, stocks don’t trade linearly and so the guidelines should NOT be taken as gospel. Rather, they merely serve to visualize which options may become profitable based on the Street’s targets.

Lastly, as always, you will want to conduct your own research and due diligence. Still, with Barchart’s tools, I’m giving you a few ideas for what I believe are the most compelling options, so long as you believe in Mattel’s upside narrative.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.