3M Co (MMM) shareholders may be hedging with put options ahead of earnings
Ahead of the company's third-quarter earnings report tomorrow morning, shares of
3M Co (NYSE:MMM) are gaining thanks to upbeat attention from the analyst front. Specifically, Barclays upgraded the Dow stock to "overweight" from "equal weight," and raised its price target to $194 from $171 -- in all-time-high territory. In the meantime, MMM stock has added 1.2% to trade at $171.60, and with 6,722 options traded, volume is running at three times the average intraday pace.
Looking closer, MMM put volume currently stands at four times the expected amount for this point in the day -- with 5,062 contracts on the tape -- outpacing call volume by 3-to-1. A vast majority of the attention has been directed toward the weekly 11/4 167.50- and 172.50-strike puts, due to a number of spread trades that crossed shortly after the open. Further down the list, the weekly 10/28 160-strike put appears to be seeing sell-to-open activity.
During the past two weeks, put buying has been extremely popular on MMM. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 3.38, which sits just 8 percentage points from a 12-month high. This illustrates just how unusual this level of put buying has been compared to call buying.
However, considering MMM shares have performed well this year, it's always possible that shareholders are
using put options to hedge their long positions ahead of earnings. Strengthening this argument is the fact that the stock has moved lower in the session after reporting earnings in five of the past eight quarters, including the two most recent quarters.
Speaking of MMM's 2016 performance, the stock has gained 13.9% year-to-date, and hit a record high of $182.27 back in July. Although the stock has taken a breather since then, the shares recently bounced from the $168 level -- which corresponds with their 200-day moving average -- an area where 3M Co (NYSE:MMM) consolidated before its breakout to all-time highs. This region could serve as technical support for the stock moving forward.
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