Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Best Way to Trade off Sony Stock's Success

Companies / Corporate Earnings Mar 11, 2015 - 05:36 PM GMT

By: Money_Morning

Companies

Tom Gentile writes: Sony Corp. (NYSE ADR: SNE) had another blockbuster on its hands with its latest movie release, "50 Shades of Grey," based on the best-selling book of the same name. While most parents justifiably didn't take their kids to this movie, adults seeking the cover of a wide release to justify their desire to watch soft-core porn have flocked to the theaters over the last 30 days.


"Shades" grossed more than $81 million in its opening weekend for the largest single grossing movie opening on record. Will this propel Sony stock to new heights in 2015? Perhaps, but either way, I will tell you how to profit using a simple options strategy.

Where Sony Shares Have Been… and Where They're Going

Looking at the shaded areas in the chart below, the stock has languished for most of the last 200 days before breaking out above 20 in November of 2014. This year, in part on anticipation of the movie, the stock is up 30% alone. So kudos to those of you who anticipated how the book's movie manifestation would draw in otherwise closeted soft-core porn patrons, and invested accordingly.

Sony stock

But where do we go from here? There's a possibility of continued gains pushing Sony stock back into price points not seen in years. So what can we expect of the stock in the upcoming months and how should we optimize our profits?

The movie will definitely help Sony's next earnings release, due out in May of this year. I did a little investigating into the last few quarters to see if any spike in price could be a one off. Not likely. Sony stock typically moves on average of just under 10% following an earnings report. The last two quarters saw both a 14% and 6% move to the upside respectively following positive earnings outlooks. So my outlook for Sony, though we may get a temporary pullback, is positive over the next three months.

What's a trader to do when armed with great bullish information on an inexpensive stock? Well, the stock is relatively cheap, so buying 100 shares of stock at the recent price will cost about $2700 plus commissions.

However, there's yet another way to gain the right to buy Sony. This way, if the stock goes up, we can profit from it. But if the price drops, we will leave it behind to those who are long the stock.

This right is called a call option. Call options give us the right to buy a specified stock, at a specified price, for a specified time. You're not bound or obligated to buy the stock. You only exercise the option if you choose. Let's walk through an illustration.

Breaking Down an Option Play on a Promising Stock

Let's take a look at a case study involving the information we have above.

Let's set a scenario for a call option play. We've done our homework, we like what we see in SNE stock for the next quarter, and then start looking at some available options for purchase.

These can be found on most brokerage websites. I am looking at the Sony July 25 calls, trading for $3. Let's break down the graphic below, by label, illustrating our purchase:

Sony Corp

  • Position - We purchased one contract.
  • Num - We bought one contract, good for 100 shares of SNE.
  • Option Symbol - A concatenation of option information, beginning with "SNE," the underlying stock that we want to buy options on.
  • Expire – The expiration date that the options are good through. In this case, we have four months to expiration of these options (July 25).
  • Type – "25 Call" means we have the right to buy SNE at $25 per share
  • Entry - The cost of the options. Note: multiply the number of contracts purchased by 100 to get your dollar cost.
  • Bid/Ask – The current bid/ask on the option.

NYSE ADR: SNE

What happens from here? Well the stock could go up, down, or sideways. Where the stock goes between now and its July expiration will determine how much profit or loss will be made. I like to graph this out so I can see it in picture form.

The following chart shows just that.

This is a risk graph of the SNE July 25 calls. Notice the two points in the caption built into the chart. The lower left one shows a loss if SNE were to drop to just above 21 by July, ending with a loss of the total amount spent on the option, or $300.

Now, look what happens if we are right about the promise of Sony stock. The top point shows how much the calls are theoretically worth if SNE reaches $33 by expiration. In this case, your options would have tripled in value from $3 to $9, leaving you with a $6 or $600 per contract profit!

There are many ways that options can be traded, but sometimes the simplest strategy makes the most sense.

Good Trading!

Source :http://moneymorning.com/2015/03/11/the-best-way-to-trade-off-sony-stocks-success/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in