Dominion (D) Option Traders Energized Before Earnings

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Dominion (D) Option Traders Energized Before Earnings

Dominion Energy, Inc. (D) investors have maintained the stock price range confined ahead of the company’s fiscal second quarter results announcement. At first sight, it looks like option traders are bracing themselves for a bullish move, as the quantity of call options in open interest is increasing. If Dominion provides a favorable earnings surprise, the extraordinary option activity might trigger a significant upward trend in the price movement.

Dominion Energy has an increasing amount of call options in open interest, and option premiums are now at an unusually high level. Trading volumes suggest that traders have been buying calls and selling puts ahead of a positive earnings release. If these investments fail to materialize, Dominion Energy’s stock price may face unexpected negative pressure.

It is difficult to forecast the direction of a stock once it has reported profits. A comparison of the stock’s option activity and price movement, on the other hand, reveals that if Dominion provides a bad report, the company’s share price might fall dramatically, falling below its 20-day moving average after the report. This might happen because options are priced anticipating an upward increase, but unexpected bad news could take traders off guard and trigger a rapid drop in share price.

Key Takeaways

  • Traders and investors have restricted the share price range ahead of the results release.
  • The stock price just fell below its 20-day moving average.
  • The price of calls and puts predicts a greater move to the upside.
  • The volatility-based support and resistance levels enable a greater downward slide.
  • This setup provides traders with the possibility to benefit from an unexpected earnings result.

A comparison of the specifics of both stock price and option behavior may provide useful information to chart watchers; nevertheless, it is vital to understand the context in which this price behavior occurred. The chart below depicts the price movement of Dominion Energy shares as of the market closing on Wednesday, August 4. This resulted in the setting for the earnings report.

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Current Trends

Dominion stock has been in the center of the volatility band during the last month, going above and below the 20-day moving average. During this time period, the lowest D share price was around $74 in early July, while the highest D share price was approximately $78 in mid-July. The price settled in the center of the range shown by the technical studies on 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 Dominion shares suggests that investors are concerned about the earnings announcement.

Tip

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 environment, where Dominion’s price trend has stayed in an ordinary range, chart observers may see that traders and investors are showing apprehension about earnings. It is worth noting that the share price has twice surged far above the 20-day moving average before falling down to that level. As a result, chart watchers must decide if the movement reflects investors’ earnings expectations.

Option trading information might assist chart viewers establish an opinion about investor expectations by providing more context. Recently, option traders have favored calls over puts by a narrow margin, despite the fact that puts outnumber calls in open interest. Normally, this volume suggests that traders’ expectations for the results announcement are gradually shifting.

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Tip

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.

Trading Activity

Option traders have priced their options on the assumption that Dominion shares would close inside one of the two boxes illustrated in the chart between now and Aug. 13, 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 40% probability that Dominion shares will settle inside this range at the end of the week. The red box showed the price for put options, which have a 31% chance of being exercised if producers move down on the announcement.

It is important to note that the open interest included roughly 33,800 calls vs 34,500 puts. However, it is worth noting that call option volume surpassed put option volume by 1.5-to-1 on Wednesday, illustrating option traders’ current preference for adding calls over puts. This might imply that option purchasers are becoming more confident. However, given the call and put boxes are almost the same size, we may conclude that the increasing proportion of call options traded is only slightly raising expectations.

A 10-day Keltner Channel analysis set at four 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.

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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 opportunity to go either way, but somewhat more room to the upside. This shows that, despite recent call volume outweighing put volume, option purchasers are unsure about how the business will report. Although investors and option traders may not anticipate it, a surprise report might cause prices to surge 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. Dominion shares plummeted 1.8% the day after reporting and continued to tumble for many weeks after the prior earnings release. Following this news, investors may anticipate a different kind of price movement. With so much opportunity for movement in the volatility range, share prices may increase or fall more than predicted.

Market Impact

Dominion shares normally move just little following results, thus the news is unlikely to have a direct impact on indices. However, regardless of what the report says, it is expected to have a significant influence for utilities stocks. A strong report might boost shares of NextEra Energy, Inc. (NEE), Duke Energy Corporation (DUK), or Exelon Corporation (EXC).It may also have an impact on exchange traded funds (ETFs) such as State Street’s Utilities Sector Fund ETF (XLU) and VanEck Vectors Uranium+Nuclear Energy ETF (NLR).

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