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SONO Shares, Options Pop on Analyst Upgrade

Josh Selway

Electronics stock Sonos Inc (NASDAQ:SONO) is one of the biggest winners on the Street today, thanks to upbeat attention on the brokerage front. Raymond James updated its rating on SONO shares to "strong buy" from "outperform," noting that the security trades near the same levels as GoPro (GPRO) and Arlo Technologies (ARLO), even though the company's compound annual growth rate (CAGR) is roughly double these firms -- something the brokerage firm believes will change as Sonos expands to other markets. Raymond James also mentioned tailwinds from the smart speaker producer's partnership with retailer IKEA, while also suggesting a new product announcement could be around the corner.

The equity was last seen trading up 10.5% following the bull note, coming in at $13.16. This would be the shares' highest close of 2019, as they continue to rally off the most recent meet-up with the $10 area, a region that's acted as support all year. On the other hand, the $12 area -- roughly half of last year's record high -- had been acting as a sticking point for SONO.

sono stock chart aug 19

This price action is bad news for short sellers, who control almost 29% of the total float. Based on average daily trading volumes, it would take these bearish traders more than 11 days to cover -- revealing plenty of potential for short-covering tailwinds.

In the options pits, short-term traders are currently very call-heavy, based on the Schaeffer's put/call open interest (SOIR) of 0.26. Not only does this show call open interest among contracts expiring within three months outweighs put open interest by nearly 4-to-1, but the reading ranks in the 1st annual percentile. In other words, such a call-skew is highly unusual. Of course, it's possible some of these call positions were initiated by short sellers hedging against an upside move like we're seeing today.

As for levels to watch, the 12.50 strike has been popular, home to peak call open interest in the September and October series. In today's trading, calls are crossing at four times the expected rate, and new positions are opening at the September 15 call. Even with today's big price action, near-term Sonos options seem fairly priced, based on the 30-day at-the-money implied volatility of 47.4%, which ranks in the 10th annual percentile.