NXPI Option Traders Change Frequencies Ahead of Earnings

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NXPI Option Traders Change Frequencies Ahead of Earnings

NXP Semiconductors N.V. (NXPI) investors have maintained the share price range confined ahead of the company’s fiscal second quarter results release. At first sight, it looks like option traders are bracing for a downward move, as the open interest in call options is increasing. If NXPI reports a negative earnings surprise, the unusual option activity might cause a severe downward trend in the price movement.

A increasing amount of call options remain outstanding for NXPI, and option premiums are abnormally high at the moment. Traders have been buying calls and selling options in expectation of a favorable earnings announcement, according to trading volumes. If these bets were to reverse, the NXPI share price may face unanticipated negative pressure.

It is difficult to forecast the direction a stock will move after results. A comparison of the stock’s price movement and option trading activity, on the other hand, reveals that if NXPI reports a negative report, the company’s share price might fall dramatically, moving closer to its 20-day moving average following the announcement. This is feasible because options are priced assuming an upward movement, but unexpected bad news might take traders off guard and cause a rapid drop in share price.

Key Takeaways

  • Traders and investors have kept the NXP Semiconductors share price range restricted ahead of the results report.
  • The stock has been closing slightly above 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.

Chart watchers may acquire significant information by examining the intricacies of both stock price and option activity, but it is critical to understand the context in which this price behavior occurred. The chart below illustrates NXPI share price action as of July 29. This set the stage for the earnings announcement.

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Current Trends

NXPI stock has been trading in the center of the volatility band over the last month, bouncing above and below the 20-day moving average. During this time span, the lowest NXPI share price was about $185 in mid-July, while the highest share price was around $209 only a few days earlier. 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 has grown to a mid-range in the week before results. This price movement in NXPI shares indicates that investors anticipate a strong earnings outcome.

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 scenario, where the price trend for NXPI has stayed in the middle of the range but has just surged above the 20-day moving average, chart watchers can see that traders and investors are optimistic about results. However, it is worth noting that NXPI’s share price has been progressively increasing in the week before results, before breaking beyond the 20-day moving average a few days before the announcement. As a result, chartists must decide if the change reflects investors’ expectations for positive profits or not.

Option trading information may help chart viewers generate an impression about investor expectations by providing more context. Recently, option traders have favored calls over puts by a narrow margin, despite the fact that the open interest in options contains somewhat more puts than calls. Normally, this volume indicates that investors anticipate a favorable earnings release, but open interest signals otherwise.

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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 based on the fact that NXPI shares have climbed to an average range and that the stock would finish inside one of the two boxes illustrated in the chart between now and Aug. 6, 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 33% probability that NXPI shares will settle inside this range at the end of the week. The red box reflected the cost for put options with a 35% chance of going lower after the announcement.

It’s worth noting that the open interest included over 30,000 active call options vs around 41,000 put options, illustrating the bias that option purchasers had, since the vast majority of transactions were put options. This quantity often indicates that put option traders anticipate a price fall. However, it is worth noting that implied volatility has been declining for put options while increasing for calls, indicating that traders are selling puts and buying calls. Because the call and put boxes are almost the same size, we may conclude that the increased number of put options traded has only marginally lowered expectations. A significantly more relaxed attitude is conveyed.

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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 room to move either downwards or upwards. Even if puts are being bought above calls, this shows that option purchasers may not have a strong confidence about how the firm will report. 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 news, whether unexpectedly good or negative, may take investors off guard and result in an abnormally significant shift. NXPI shares plummeted less than 1% the day after the last results report and continued to tumble the following week. Following this news, investors may anticipate a different price movement. With so much opportunity for movement in the volatility range, share prices may increase or fall more than predicted.

Market Impact

NXPI shares normally fluctuate little after earnings, thus the findings are unlikely to have a direct influence on indices. However, regardless of what the study says, it will most certainly have an impact on semiconductor stocks. A strong report might boost the stock prices of other companies in the industry, including Texas Instruments Incorporated (TXN), Qualcomm Incorporated (QCOM), and Micron Technology, Inc. (MU).It would also have an impact on exchange-traded funds (ETFs) like Invesco’s QQQ Trust ETF (QQQ) and VanEck Vectors Semiconductor ETF (SMH).

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