SONO Unusual Option Activity Report

The share price of Sonos Inc surged nearly 7% higher on Thursday. The move is a significant breakout on substantial volume. It was the analyst upgrade at Bank of America that sparked the enthusiasm. The analyst, John Babcock, upgraded his recommendation to a buy form a neutral, and raised his price target to $18 from $17.50.

The primary reason for the upgrade cited by the analyst was the backlog for several of the company’s products, including its Arc and Sub products. Apple's removal of third-party speakers from their store didn't appear to be an issue. He was quoted as saying, “Separately, we believe the stock's reaction to Apple's decision to remove third-party speakers from its website was overdone."

There you have it, the sell-off of SONO was overdone and the price is poised to move significantly higher. While that is one analyst’s opinion, the stock price and option activity appear to agree.

SONO Option Activity

Call option volume exploded along with the stock volume on SONO today. The call volume was over 20 times the average, and 45% of the volume filled at the ask. The put volume was nearly four times the average, and 36% filled at the bid.

Looking more closely at where the activity was occurring, it was the December expiration. Here’s a breakdown of the trades:

• 41,563 18 DEC 20 $17.50 call mostly BOT @ $0.80 to $1.35

That’s a significant amount of volume against an open interest of only 1,333 contracts. It’s unlikely that the open interest will increase over 40,000 after the close, but it will likely increase substantially. The nature of the movement in the share price and the bullish activity in its options is a powerful combination. The breakeven of the option trade is nearly $19 by December’s expiration.

SONO Charts

Today’s movement in the share price of SONO along with the substantial volume is a confirmation of a symmetrical triangle formation. The neutral price pattern began to consolidate following the high on October 1. The series of lower highs and higher lows that formed makes up the pattern. The direction is based on the breakout.

The width of the pattern from the high on October 1 to the low on October 9 is $2.35. That helps establish a price target by adding it to the breakout level at $15. That gives a target of $17.35. Also, the price level lines up with the 161.8% Fibonacci projection from the seed wave on September 4 through September 22.

The seed wave projection also provides levels at 223.6% and 261.8%. The price range between those levels falls between around $19 to $20. That level aligns with the breakeven of the unusual option trade.

Conclusion

 It may have seemed at the time that the removal of Sonos speakers from the Apple store could really hurt the company. However, this follows the saying, “what doesn’t kill you, makes you stronger.” As cliché as that sounds, it may just be the reality and analysts, stock investors and option traders appeared to be in agree today as well.