Sony Bulls Highest Since 2008 Bet on Stock

By Jeff Kearns and Nikolaj Gammeltoft - Oct 20, 2011 7:38 AM GMT+0700

Sony Corp. (SNE) options traders are placing more bullish bets than any time in three years, speculating Japan’s largest electronics exporter will rebound after $8 billion was erased from the stock since July.

Calls to buy Sony outnumber puts to sell by 2.1-to-1 on U.S. exchanges, the most since October 2008, data compiled by Bloomberg show. The ratio has surged in the past two months from 0.97-to-1. Sony has lost 26 percent in American trading since July 7 on concern the rising yen will hurt overseas sales.

The retreat was larger than all but one of the 26 Japanese American depositary receipts valued above $20 billion, according to data compiled by Bloomberg. Only Canon Inc. has a higher call-to-put ratio among that group, and it has 99 percent fewer contracts in existence than Sony, which sank to the lowest level since 1987 in Japanese trading this month. Sony has introduced a tablet computer to compete with Apple Inc. (AAPL)’s iPad and is forecast to double earnings this year.

“After such poor performance for so long, maybe they’re due,” Carlo Panaccione, co-founder of Navigation Group Inc., which oversees $350 million in Redwood Shores, California, said in a telephone interview yesterday. “Tablets in general are obviously a growing area and that could be prompting some of this action.”

Sony has slumped after the yen strengthened almost 6 percent against the U.S. dollar since July 7. The company introduced a tablet computer on Sept. 1 and will report 117 percent growth in earnings excluding some items in fiscal 2012, according to the average analyst estimate in a Bloomberg survey.

Music, Video

Tablets from Sony, which has posted three straight annual net losses, run on Google Inc.’s Android system and integrate the company’s music, video, gaming and digital book offerings. Worldwide sales of tablets are set to triple to $30.6 billion this year, according to Strategy Analytics estimates. Apple will probably capture 73 percent of the market, compared with 88 percent in 2010.

Global equities entered their first bear market since 2009 at the end of September after concern Europe’s debt crisis is intensifying drove investors out of stocks. Japan’s Nikkei 225 Stock Average slumped 14 percent in 2011 through yesterday following the nation’s record earthquake and resulting tsunami. Shares have rebounded in October, driving the MSCI All-Country World Index up the most over eight days since May 2009, amid optimism European leaders will contain credit losses.

“Sony’s gotten beat up on that slowing developed market growth dynamic, and now you’ve got some people coming into the market to do some bottom-feeding via the calls,” Max Breier, a senior equity derivatives trader at BMO Capital Markets Corp. in New York, said in a telephone interview on Oct. 18. “People are looking toward a recovery from the Japan earthquake and a rebound in GDP growth in Europe and North America.”

Overseeing a Slump

Sandy Genelius, Sony’s spokeswoman in New York, declined to comment on the options trading in the company’s stock.

Howard Stringer has overseen a 59 percent decline in Sony’s stock price since becoming its first non-Japanese chief executive officer in 2005. Apple surged more than 950 percent during the same period as Steve Jobs transformed the Cupertino, California-based company into the world’s largest technology company by market value.

Stringer may cost shareholders a gain of about 70 percent by clinging to its television business, according to a Bloomberg analysis in August. Sony said in July that its TV division will lose money for an eighth straight year.

“The stock is cheap, but management has a history of disappointing the market,” Chad Deakins, an Atlanta-based manager of an international equity fund for RidgeWorth Capital Management, said in an e-mail yesterday. His firm, which owns Sony shares, oversees $45 billion. “The TV business is currently a crowded and difficult space,” he said.

Nikkei Volatility

The Nikkei Stock Average Volatility Index, a gauge of options prices for Nikkei 225 (NKY) stocks, lost 5.5 percent to 27.57 yesterday, bringing its decline since Oct. 3 to 30 percent. The Chicago Board Options Exchange Volatility Index or VIX, a measure of options prices on the Standard & Poor’s 500 Index, rose 9.1 percent to 34.44.

Sony’s Japanese shares lost 46 percent this year through yesterday for the ninth-worst performance in the Nikkei 225. The stock closed at $20.24 yesterday in the U.S., where January $21 calls are the fastest-growing options bet this month. Open interest climbed by 9,664 contracts to 9,993 contracts. October $23 calls have the highest open interest at 11,204 contracts.

“Sometimes a company that is left for dead can recover,” Scott Tapley, who helps oversee $2.5 billion at 1st Source Investment Advisors Inc. in South Bend, Indiana, said in a phone interview. “But they’ll have to find their own Steve Jobs.”

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net