Why Sony Corp (SNE) Is On the Brink of a Holiday Season Slide

Sony Corp (SNE) has sat out the post-election rally, leaving the overloved stock in a dangerous position

Dec 20, 2016 at 1:52 PM
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Sony Corp (ADR) (NYSE:SNE) has underperformed the broader market badly in recent months. Specifically, in the past 40 sessions, the electronics stock has trailed the S&P 500 Index (SPX) by almost 15 percentage points. Not to mention, since the U.S. presidential election on Nov. 8 -- a time frame during which both stocks and investor optimism have exploded -- the shares have actually fallen over 6% at $28.75. Moreover, this slide has come in spite of a holiday season that should be a boon to sales of Sony's new gaming consoles, the PS4 Slim and PS4 Pro.

That said, sentiment on Wall Street is positively upbeat. Take, for instance, the options activity seen recently at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). SNE traders have bought to open 4.88 calls for every put during the past four weeks -- a period in which the shares have given up ground. If option bulls start hitting the exits, it could create headwinds for the stock.

Meanwhile, bearish short sellers have been pressing the eject button. Over the last two reporting periods, short interest on SNE plummeted by over 25%. Now, a razor-slim 0.2% of the stock's float is dedicated to these bearish bets. All that to say, there's plenty of room for short sellers to pile on, as their fears of a holiday breakout in SNE fail to materialize.

One last sentiment indicator worth noting is the sky-high expectations among the brokerage crowd. While just two analysts cover Sony stock, both consider it a "strong buy." Not to mention, the consensus 12-month price target of $42.18 stands at a nearly 47% premium to current levels -- and in territory not charted since mid-2008. From a contrarian perspective, a round of downgrades and/or price-target reductions could exacerbate SNE's recent sell-off.

Finally, for those looking to speculate with short-term options, now is a great time to purchase premium. Sony Corp's (ADR) (NYSE:SNE) Schaeffer's Volatility Index (SVI) checks in at an annual low of 23%. In layman's terms, front-month SNE options are pricing in low volatility expectations, historically speaking.

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