What could be the Major Movers in Equity this Quarter?

What could be the Major Movers in Equity this Quarter?

Every earnings season brings about significant price action for the stock market. We will take a look at the options markets and implied volatility to gauge some stocks that are expected to go through heightened volatility in the upcoming period.

Qualcomm


Qualcomm’s shares have gyrated around the 20-day moving average since the beginning of 2021, and while implied volatility has gone down since reporting its quarterly results, the upcoming period is expected to bring back a time of accelerated volatility.
The long-awaited shift to 5G is happening, as these networks are becoming broadly available in China, the U.S., and parts of Europe. Moreover, sales of network-compatible smartphones are expected to jump from the third quarter onward.

Being a major player in the semiconductor chip industry, Qualcomm is ready to take advantage of the expected boom in handset sales. Qualcomm makes chips for multiple market leaders in the smartphone industry, such as Apple and Samsung.

Demand is expected to continue exceeding supply, and the supply shortage that has plagued the world over the last few quarters is starting to loosen up a bit.

Implied volatility is at 24.87%, although slightly below the historical average. Options traders’ behavior to sell calls and buy shorts earlier this week display negative sentiment despite the rosy fundamental outlook.

As we can see in the chart, Qualcomm’s shares have, in multiple instances, hit the upper and lower limits of the Bollinger Bands and Keltner Channels since the start of the year.

Prices have retreated towards the middle range. We see a short-term risk to the downside, but the fluctuations are expected to continue.

Uber

The implied volatility of Uber’s shares, currently at 36.45%, is well above their historical average of 28.7%.


Uber’s earnings have started beating estimates in the second half of 2020 and reported an outstanding increase in profit in the last quarter. The large increase in open interest on call options is indicating traders are expecting more.


Uber usually experiences extreme volatility after each earnings report. The earnings report for Q3 2021 was released on 9 November.


With the growing number of net call positions in open interest, there will be extreme pressure on the share price in the case of a negative surprise in earnings.


The share price has been on a strong uptrend since the start of the pandemic, but there have been some strong corrections. The most notable is the one triggered by 2020’s fourth-quarter results.


Uber had reported an expected loss back then, but shares started a three-month correction that was only reversed after the following quarter’s earnings release in early May.

Snap

In a similar case to Qualcomm, options traders have been selling calls and buying puts, mainly due to the price moving near the upper volatility range in the past few weeks.

This indicates a possible downward movement with the price trading at the limits of its usual deviation from the 20-day and 50-day moving averages, which happened following its latest earnings release.

Shares jumped 23% on 22 July, after a 44% surprise in second-quarter earnings. The major volatility support levels are far lower than the current volatility resistance levels the price is trading at. We can see that in the price chart.

Implied volatility is around 43% for the latest Snap contracts.

In the same earnings report released in July, the company offered strong guidance for the upcoming quarter. The profit is seen growing 60%, more than 2020.

Fundamentally, the company is displaying a strong outlook, but a correction in the months before its earnings release could be in order. A negative surprise could potentially place heavy selling pressure on the share price.

DISCLAIMER: This content is for presenting general information only. Any research or information mentioned here is objective and does not take into regard your financial position, investments, or objectives. INGOT Brokers (Australia) Pty Ltd accepts no responsibility for any use that may be made of these comments and for any resulting consequences. We do not give any warranty in regard to the completeness of this information or its accuracy and thus its use. Leveraged trading carries a high risk and is not suitable for all, and anyone who uses leverage is doing so entirely at their own risk.

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