I would like to consider myself to be an optimist by nature, at least in some areas. For example, I try not to harp on beaten down stocks. Many times a beaten down stock will eventually find its way and bounce back. However, sometimes there is a lesson to be learned and I think that is the case with Nortel Networks Corporation (NT).

I started taking an interest in Nortel after my colleague Mark Fightmaster discussed the company's plunge after earnings on Friday. The stock then popped up on today's option skews scan where we see that the drop inspired some call purchases.

While beaten down stocks can bounce back, I think it might be prudent to consider this stock's history before joining the NT bulls. Specifically, I am talking about the late-2006 1-for-10 reverse stock split. As you can see from the weekly chart below, that effort to revive the stock had little impact. With the company now saying they see increasing risk, it might be wise to pay attention to that downtrend.

Chart Courtesy of Thomson Financial