Unusual Options Activity Predicts ONON Earnings Miss, +199% Trade

Rebel Hub Education

by

Justin Nugent

August 15, 2023
at 3:08 PM

Scroll down to see the original, unedited UOA alert in ONON that led to this earnings miss:

Source: Thinkorswim

On Friday, we issued a free UOA alert in ONON, On Holdings (see the full alert, unedited, including the technical analysis we completed below).

Today, ONON reported earnings, missing EPS by a whopping -65.96%. That had a very negative effect on the stock’s price, with ONON falling as low as $28.55.

Source: Google

This is the power of unusual options activity. When institutional traders spend $1.1 million dollars on a targeted, short-term trade outcome like the one shown here, it often means they have a very strong hunch about what’s about to happen in the underlying stock. Institutions are often backed by teams of highly paid researchers, advanced algorithms, and are sometimes even privy to information that individual traders could never access. That’s why we watch unusual options activity so closely — it’s the best way to ride the coattails of institutional traders who may know something that we don’t.

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Unusual Options Activity Seen in ONON Before Earnings (Technical Analysis Below) — Originally issued Friday

No, not ON Semiconductor — we’re talking about On Holdings (ticker symbol ONON). This company produces and distributes sports products worldwide including athletic wear, apparel, and accessories. More importantly, the stock reports earnings on August 15th, before the bell. According to Zack’s Investment Research, ONON is expected to show EPS of $0.13, a YoY decline of -13.3% per year. Moreover, the company has high expectations for its revenue — analyst consensus expects a 54.3% rise year over year in revenue.

As usual, with a case like ONON, we’re more concerned with the technicals and the options order flow than what the company does. In this case, we saw bearish activity in ONON this afternoon, in the form of $35-strike puts expiring August 18th, bought for an average cost of $2.14 per contract.

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That means these contracts will be profitable if ONON sinks to at least $32.86, and will rake in a double if ONON falls to at least $30.72.

ONON’s expected earnings move according to Options AI is ±10.9% — if the options market is right, that would indicate a fall to $30.88 from the current price ($34.66) — getting us near that 100% profit sweet-spot. Additionally, a look at the last three times ONON reported earnings shows an average move of ±14.94%, with a maximum move of 26.38% and a minimum of 8.73%. When making a short-term options trade, we always like to look for a catalyst, and the ability for the stock to move within the timeframe given. That’s what we have here.

ONON 1D performance following the past three earnings reports. Source: Options AI

On top of that, that’s the average one-day move following earnings. With a macro that’s looking increasingly bearish, there’s plenty of time for these ATM options to fall between now and then.

To put a little icing on the cake, we’ve peaked at the chart and noticed three glaring bearish technical patterns in ONON stock. The first two are back to back bearish engulfing candles (highlighted below) in the daily candles.

Source: TradingView, Market Rebellion

Additionally, zooming in to the hourly candles, these bearish engulfing candles form a double top — another well-known bearish technical pattern.

Source: TradingView, Market Rebellion

This confluence of 3 bearish technical patterns combined with bearish unusual options activity targeted directly at earnings in a stock that has shown the ability to move 26.38% following earnings looks promising to us — that’s why we’re issuing ONON $35 strike puts expiring August 18th as our way to use unusual options activity to trade earnings in On Holdings. With a stock that was recently trading as low as $25.51, ONON has plenty of room to the downside.

As always, be safe, trade smart, and use a plan.

Happy trading Rebels!

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