Sony (SONY) Option Traders See Upside Ahead of Earnings

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Sony (SONY) Option Traders See Upside Ahead of Earnings

Sony Group Corporation (SONY) investors have maintained the company’s share price range confined ahead of the company’s fiscal first quarter results announcement. At first look, it seems like option traders are poised for a bullish move, as the quantity of call options in open interest is increasing. If SONY reports a favorable earnings surprise, the extraordinary option activity might trigger a significant upward trend in the price movement.

In the open interest for SONY, a substantial number of call options exist and are increasing, and option premiums are exceptionally high right now. Trading volumes suggest that traders have been buying calls and selling puts ahead of a positive earnings release. If these wagers were to fail, the SONY share price may face unexpected 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 SONY releases a bad 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 anticipating an upward trend, but unexpected bad news might take traders off guard and cause a fast drop in share price.

Key Takeaways

  • Traders and investors have restricted the share price range ahead of the results release.
  • The stock’s closing price has been much higher than 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 bigger upward rise.
  • 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 displays the price movement of SONY shares on Monday, August 2. This set the stage for the earnings announcement.

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Current Trends

SONY stock has been trading in the top third of the volatility band over the last month. The lowest SONY share price for the last month was approximately $97 in early July, while the highest share price was about $106 in late July. The price settled at the top zone 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 surged over the 20-day moving average in the week before results. This price movement in SONY shares indicates that investors anticipate a favorable 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 SONY has stayed high, chart watchers may see that traders and investors are optimistic about earnings. However, SONY’s share price soared above the 20-day moving average a few days before the report in the week before results. 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 wide margin, and the open interest in options has a considerably higher proportion of calls than puts. Typically, this volume indicates that investors anticipate a favorable earnings report.

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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 to wager that SONY shares will close inside one of the two boxes illustrated in the chart between now and Aug. 6, the Friday after the earnings report is issued. The price offered by call option sellers is shown by the green-framed box. If prices rise, there is a 41% probability that Sony 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 contained about 48,000 active call options vs around 12,600 put options, illustrating the option buyers’ bias, since the bulk of transactions were call options. This quantity often indicates that call option traders anticipate a price increase. However, given the call and put boxes are almost equal in size, we may conclude that the increased proportion of put options sold has only moderately raised expectations. A significantly more relaxed attitude is conveyed.

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 that the call and put prices are so close, with lots of room to fall. This shows that, despite the fact that call volume outnumbers 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 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. Sony shares gained by less than 1% the day after the prior results release before plummeting 4.5% the following day and continued to decrease for many weeks. 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

SONY shares normally fluctuate little after earnings, thus the findings are unlikely to have a direct influence on indices. Whatever the study says, it will almost certainly have a substantial impact on consumer electronics stocks. A strong report might boost other industry companies like Sonos, Inc. (SONO) or Vizio Holding Corp. (VZIO).It may also have an impact on exchange traded funds (ETFs) like Avantis’ International Equity ETF (AVDE) or Changebridge Capital’s Long/Short Equity ETF (CBLS).

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