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This morning, Swedish telephone giant, Ericsson (ERICY – 11-3/16) reported disappointing earnings for its fourth quarter and warned of slower sales expectations for the first quarter. The company also revealed that it is in agreement with outsourcing company, Flextronics (FLEX - 36-1/2) to produce its handsets. Analysts feel that while this may aid in ERICY's supply chain management, it is by no means a fix for the company.
ERICY stock has been range-bound between 10 and 14 since last November and may again test its lows. The shares have traded off by as much as 12 percent overseas and are now more than 14-percent below yesterday's close.
The Schaeffer's put/call open interest ratio
(SOIR) for ERICY has been trending downward and currently stands at a 0.4 percentile ranking. The decreasing SOIR reading indicates that bullish call option open positions have been increasing relative to their bearish put counterparts. The 0.4 percentile ranking means that fully 99.6 percent of the readings over the past year have been higher, or more bearishly configured.
Heading into the earnings release, the February 12-1/2 call has been accumulating open interest. This option is by far and away the site of peak open interest on the shares, with 48,305 current open positions. 14,497 new positions were opened up yesterday alone. This much optimism heading into an earnings release puts additional pressure on the company to perform. A negative surprise can have devastating results, while even a modestly positive surprise can be greeted with less than stellar stock performance.