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How this Penny Stock $NOK-ed Out Analyst Estimates

Updated 4/18/2022 4 min read

Among penny stocks, one in particular sticks out like a sore thumb.

It has brand recognition across the globe, boasts a $35 billion market cap, and currently has some of the richest bets in the entire options market placed upon it.

If you’re a millennial, you’re likely familiar with this company from burning hundreds of hours in high school playing “snake” on their devices.

Without further ado, let’s take a brief at a nostalgic retail favorite … Nokia (NYSE: NOK).

Earnings Surprise

Nokia reported surprisingly strong Q1 earnings last Thursday, with net sales up 9% and gross margin up 37.8%. They also disclosed a net cash position of EUR 3.7 billion ($4.4 billion USD) and a comparable operating margin of 8.5%.

Yet the most explosive beat was seen in the number every shareholder cares about most, earnings per share, which came in at a whopping $0.08 versus analyst estimates of $0.01.

The company’s stellar quarter can largely be attributed to the growth of 5G, an area within which Nokia aims to be a leader, and so far is proving as much. While they no longer make telephones (instead opting to license their well-known brand name to handsets produced by HMD) Nokia is still developing critical infrastructure tools for the future of 5G.

The follow-through in the price action has been strong so far, with the stock up 17% in three days, but a deeper view into NOK’s option chain reveals evidence that the meteoric rise may just be beginning.

Million-Dollar Option Bets

Outsized option bets, illustrated through large open interest (OI) on contracts, can provide traders with an indication as to where market whales believe future price action will be heading.

While no one has a crystal ball, and open interest is never a guarantee of an impending move, it is certainly a notable denominator when looking at the trajectory of a share price.

NOK certainly stands out from the crowd in the options market. For months, call buyers have been pressing their advantage, purchasing hundreds of thousands of out-of-the-money contracts (worth tens of millions of dollars) while the stock was languishing and implied volatility was at rock bottom.

The sheer volume of the contracts, coupled with the dollar value of the positions, is truly remarkable when viewed in tandem:

nokia call strikes

You don’t need to know a thing about the options market to see how strong call buyers’ conviction is in Nokia.

These contracts are depreciating assets, with the possibility of expiring worthless, yet traders are still laying out nearly $100 million behind their belief that NOK shares will exceed $5, $7, or even $10 by their respective expiration dates.

We can consider the possibility that a massively levered hedge fund is behind these trades, however, they could also be partially explained by retail traders’ fascination with the stock.

For several months, traders on WallStreetBets have been pointing to Nokia as an undervalued recovery play, ripe for monstrous gains.

Is it possible that the astute “autists” of #WSB are behind these massive bets? Will they use this spectacular earnings catalyst as a bludgeon to punish option sellers?

While it would certainly be on-brand for the subreddit, for now, we can only speculate.

Now that Nokia has delivered spectacular earnings, just as share and call volume swells to near-term highs, the table is set for a captivating game of tug-o-war.

Grab your popcorn, do your due diligence, and keep a close eye on Nokia in the coming weeks and months.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”