Mattel Option Trader Is Selling The 'Hello Kitty' Rally

Mattel Inc MAT shares are up 16 percent in the past week, but at least one large option trader is betting the rally may have run out of steam.

The Trade

On Monday morning, Benzinga Pro subscribers received an option alert related to an unusually large Mattel call sale.

At 9:43 a.m., a trader sold 1,507 Mattel call options at an $11 strike price that expire on August 16. The calls were sold at the bid price at $1.051 cents and represent a $158,385 bearish bet. Prior to the large trade, the open interest for the August 16 Mattel $11 calls was only 92 contracts.

Even traders that focus exclusively on stocks watch the options market closely to gain insight into what options traders may be thinking. Due to the relative complexity of options trading, options traders are often seen as more advanced than the typical stock trader. Many of these options traders are institutions or wealthy individuals that may have a unique take on a company.

Sell The News?

The bullish trading in Mattel this week came after the company announced a deal with “Hello Kitty” owner Sanrio to launch a new line of “Hello Kitty” toys and games. The latest deal is part of new CEO Ynon Kreiz’s strategy of landing new partnership deals, including new Holywood movie deals for Mattel franchises such as “Barbie,” “Hot Wheels” and “He-Man.”

Monday's call seller may believe the market is ascribing too much value to the new “Hello Kitty” deal. Toy makers like Mattel have been pressured as traditional toys have lost market share to electronic devices. Last year, Mattel also lost one of its largest U.S. retail partners when Toys ‘R’ Us declared bankruptcy.

Unfortunately, it’s impossible to be 100 percent certain if an option trade is a hedge or not. Stockholders often use call options to hedge against a larger bearish stock position. Given the Mattel option trade’s relatively small size, it’s unlikely to be a hedge in this case.

Mattel's stock traded around $11.16 per share at time of publication.

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