AXP Option Traders Charged Up for Positive Earnings

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AXP Option Traders Charged Up for Positive Earnings

Before the American Express Company (AXP) releases its fiscal second quarter results, investors have maintained the share price range-bound. It indicates that options traders are set up to expect a bullish move since there are more call options in the open interest. If AXP produces a favorable earnings surprise, the unusual option trading may produce a significant upward trend in the price movement.

With extremely large option premiums, an increasing number of call options are still available for AXP. The trading activity suggests that traders have been selling put options and purchasing calls in expectation of a strong earnings release. These bets might quickly reverse if AXP’s earnings report falls short of market expectations, which would put negative pressure on the share price of AXP.

The direction a stock will move following results is impossible to anticipate with any degree of accuracy. However, if the firm releases a good report, AXP shares might climb strongly and move closer to their 20-day moving average in the first few days after the announcement, according to a comparison of the price movement between stock prices and option trading activity. Because options are priced for a tiny shift, this might occur. However, better-than-expected positive news could take traders off guard and produce a significant increase in price.

Key Takeaways

  • In anticipation of the news, traders and investors have held the price of shares steady in a midrange range.
  • Recently, the price has been trading higher than its 20-day moving average.
  • A greater upward movement is predicted by put and call prices.
  • A stronger move downhill is possible thanks to the support and resistance levels based on volatility.
  • Traders have the chance to benefit from an unexpected outcome thanks to this setup.

Speculators who aim to make money by accurately predicting unforeseen changes in an underlying stock or index, as well as investors who wish to safeguard their holdings, engage in option trading. As a result, trading options is essentially a wager on market possibilities. Chart watchers may learn a lot by analyzing the specifics of both stock and option price behavior, but it also helps to comprehend the environment in which this price behavior occurred. The price movement for the American Express share price as of Wednesday is seen in the chart below. This established the framework for the earnings report.

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Current Trends

The share price of the company has remained in the center of the range during the last month, at or above the 20-day moving average, according to the trend of the stock. It’s interesting to note that share prices in July rose above the 20-day moving average before falling back below it in the lead up to the announcement. The price has continually been above or above the moving average, as seen on the chart.

The studies’ 20-day Keltner Channel indicators are created. These are price levels that are multiples of the stock’s average true range (ATR). This array makes it easier to see how the price has been steady at the center of the range’s upper limit. For AXP shares, this price movement is encouraging.

Tip

A common method for displaying historical volatility over time is the Average True Range (ATR). Two to four weeks of trade on a daily chart are often included in the 10 to 20 time periods that make up the standard average length of time utilized in its computation.

Chart watchers can see that traders and investors are expressing confidence heading into earnings in this situation when the price trend for AXP has been staying in the top portion of the intermediate range. The share price increased the week before results, but the following week it briefly dipped below the 20-day moving average before regaining the top spot. It is crucial for chart observers to ascertain whether or not the change reflects investors’ predictions for a poor earnings report.

Information regarding option trading may provide chart viewers more insight into the expectations of investors. Since the open interest in options has begun to tilt more in favor of calls than puts, option traders now prefer calls over puts by a substantial margin. This often indicates that traders anticipate AXP to rise higher following results and that investors are anticipating positive news from the business report.

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Tip

A 20-day simple moving average, an upper and lower line, and a series of semi-parallel lines are shown by the Keltner Channel indicator. This channel indicator provides for a fantastic visualization tool for charting historical volatility since the higher lines are produced by adding a multiple of ATR to the average and the lower lines are drawn by subtracting a multiple of ATR from the average price.

Trading Activity

Option traders have priced their contracts as a wager that the stock will close between today and July 23, the Friday following the release of the earnings report, inside one of the two boxes shown in the chart. They are aware that AXP shares are slightly above average and have priced their contracts accordingly. The price that the call option sellers are providing is shown by the green-framed box. If prices rise, there is a 35% likelihood that AXP shares will finish inside this range at the end of the week. Put option pricing is shown in the red box, with a 34% likelihood if prices decline after the announcement.

It is significant to notice that the open interest contained around 85,000 active call options compared to approximately 100,000 active put options, indicating that there was little prejudice among option purchasers in favor of puts over calls. Normally, this odd sum suggests that option traders anticipate a decline. The almost similar size of the call and put boxes, however, indicates that the strong trading volume of put options has not significantly lowered expectations. This situation suggests a much more relaxed attitude.

The 10-day Keltner Channel research with a four-times ATR setting produced the purple lines on the graph. With this metric, the price action is more likely to produce zones of strong support and resistance that are strongly connected. When the channel lines have recently made a considerable turn, these areas become visible.

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The graphic below includes annotations for the levels that the turns designate. This chart’s call and put prices are in such a small range with equal room to move in either direction, which is noteworthy. This indicates that even while puts are being preferred over calls by option purchasers, they may not be confident in the way the firm will report. Even if traders and investors might not anticipate it, a shocking announcement would cause prices to move sharply higher or down.

These levels of support and resistance demonstrate a wide range of price support and resistance. Therefore, it’s likely that any news—surprisingly good or bad—will take investors off guard and cause an out of the ordinary huge move. The day of results and throughout the following week, AXP shares increased 1.9% after the prior earnings report. After this news, investors could anticipate a similar price movement. The volatility range has a lot of space, so share prices may climb or decrease more than anticipated.

Market Impact

After results, AXP shares often see significant movements, which might cause index prices to shift immediately. No matter what the investigation concludes, banking sector equities are going to be significantly impacted. Other sector companies like Mastercard Incorporated (MA), Visa Inc. (V), or PayPal Holdings, Inc. might benefit from a favorable report (PYPL).Exchange-traded funds (ETFs) like State Street’s Financial Sector Index ETF (XLF) and perhaps State Street’s S&P 500 Index ETF Trust would also be impacted (SPY).

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