Pessimistic investors have driven down BlackRock, Inc. (BLK) share price ahead of the investment manager’s fiscal third quarter results release. At first glance, it looks like option traders are bracing for a downward move, as put options exceed calls in open interest by more than two-to-one. If BlackRock reports a negative earnings surprise, the extraordinary option activity might cause a severe downward trend in price movement.
There are a lot of put options active for BLK, and option premiums are exceptionally high right now. Trading volumes suggest that traders have been buying options and selling calls in expectation of a disappointing earnings report. If these investments come to fruition, it might put unexpected upward pressure on BlackRock’s share price.
It is difficult to anticipate the path of a stock following results. A comparison of the stock’s option activity and price movement, on the other hand, reveals that if BlackRock gives a good report, the company’s share price might climb, moving closer to its 20-day moving average following the release. This is possible because options are priced expecting a decline, but unexpected positive news might take traders off guard and trigger a quick jump in share price.
- Traders and investors have reduced the share price in anticipation of the results announcement.
- The stock has lately closed below its 20-day moving average.
- The price of calls and puts predicts a bigger move to the negative.
- The volatility-based support and resistance levels allow for a more aggressive upward surge.
- This setup provides traders with the possibility to benefit from an unexpected earnings outcome.
A comparison of the nuances of both stock price and option activity might provide significant information to chart viewers. However, it is critical to comprehend the context in which this conduct occurred. The chart below displays the price movement of BlackRock shares on October 11. This set the stage for the earnings announcement.
BlackRock stock has been on a relative negative trend over the last month, routinely closing below its 20-day moving average. During this time period, the highest BlackRock share price was about $915 in mid-September, and the lowest share price was $825 in early October. The price settled at the lower zone shown by the technical studies in this chart.
The indicators used in the research are 20-day Keltner Channel indicators. These are price levels that are multiples of the stock’s Average True Range (ATR). This array emphasizes how the price fell below the 20-day moving average in the week before earnings. This price movement in BlackRock shares suggests that investor confidence is dwindling as the earnings release approaches.
The Average True Range (ATR) has become a widely used technique for illustrating historical volatility over time. The average amount of time employed in its computation is 10 to 20 time periods, which comprises two to four weeks of everyday trading.
In this context, where BlackRock’s price trend has closed below its 20-day moving average for more than a month, chart watchers may see that traders and investors are expressing increased pessimism about results. It’s worth noting that BlackRock’s share price looks to have found fresh support in the week before reporting. As a result, chartists must decide if the change reflects investors’ expectations for positive profits or not.
Option trading information may give extra context to chart viewers, allowing them to make an opinion about investor expectations. Recently, option traders have favored calls by a slight margin over puts. On Monday, approximately 3,000 calls were exchanged against over 2,300 puts. Normally, this volume suggests that traders are optimistic about the earnings announcement.
The Keltner Channel indicator shows a series of semi-parallel lines based on a 20-day simple moving average, as well as an upper and lower line. Because the higher lines are produced by adding a multiple of ATR to the average price and the lower lines are drawn by subtracting a multiple of ATR from the average price, this channel indicator is an ideal visualization tool for displaying historical volatility.
Option traders have priced their options to wager that BlackRock shares will close inside one of the two boxes illustrated in the chart between now and Oct. 15, the Friday after the earnings report is announced. The price offered by call option sellers is shown by the green-framed box. If prices rise, there is a 38% chance that BlackRock shares will finish inside this range at the end of the week. The red box reflects put option pricing, with a 34% possibility if prices fall after the announcement.
It is worth noting that the open interest ratio was over 19,000 calls to over 47,000 puts, illustrating the bias that option traders had, as traders preferred puts over calls. Put implied volatility has been growing, suggesting that traders are purchasing these options. This reflects a pessimistic outlook on BlackRock earnings. However, given the call and put boxes are almost the same size, we may conclude that the greater number of put options has only moderately shifted expectations downward.
A 10-day Keltner Channel study set at 4 times the ATR yielded the purple lines on the chart. This metric creates closely connected price action zones of strong support and resistance. These areas appear when the channel lines have made a noteworthy turn during the last three months.
The levels marked by the turns are noted in the chart below. What stands out in this chart is how close the call and put prices are, with lots of potential to go either way, but with greater room to the upside. This shows that option purchasers aren’t certain about how the firm will report, despite the fact that open interest is significantly skewed against puts. Although investors and option traders may not anticipate it, a surprise report might cause prices to rise or fall drastically.
These support and resistance levels demonstrate a wide variety of price support and resistance. As a consequence, any unexpectedly positive or unfavorable news might take investors off guard and result in an abnormally significant shift. BlackRock shares plummeted 3% the day after results and continued to tumble the next week after the prior earnings report. Following this news, investors may anticipate a similar price movement. With so much opportunity for movement in the volatility range, share prices may increase or fall more than predicted.
Bank earnings season begins, and may give insight into general economic performance for the quarter as well as a projection of market expectations for the near future. Although BlackRock is not a bank, it is the world’s biggest asset manager, thus the disclosure might have an immediate impact on indexes.
Whatever the study says, it is expected to have an impact on financial sector and asset management companies. A good report might boost other industry companies like Blackstone Inc. (BX) or Brookfield Asset Management Inc. (BAM).It may also have an impact on exchange traded funds (ETFs) such as State Street’s S&P 500 Index ETF (SPY), Schwab’s US Dividend Equity ETF (SCHD), and State Street’s Financial Sector ETF (XLF).
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