S – Sprint Nextel Corp. – A number of options players are positioning for a rebound in shares of the telecommunications company by employing diverse trading strategies on the stock today. Sprint’s shares fell 1.5% to $3.89 by 11:45 am ET. Optimistic investors purchased approximately 5,100 calls at the October $4.0 strike for an average premium of $0.28 apiece. Call buyers are prepared to make money if the price of the underlying stock jumps 10.0% to surpass the average breakeven price of $4.28 ahead of expiration day in October. A longer-term bullish individual initiated a three-legged spread in order to position for a sharp recovery in Sprint’s shares by expiration day in January 2011. The investor appears to have sold 2,000 puts at the September $3.5 strike for an average premium of $0.39 each, purchased the same number of calls at the September $4.0 strike for premium of $0.54 apiece, and sold 2,000 calls at the higher September $5.0 strike for an average premium of $0.24 a-pop. The investor responsible for the transaction receives a net credit of $0.09 per contract, which he keeps as long as Sprint’s shares exceed $3.50 through expiration. Additional profits start to amass for the trader if shares rally above $4.00. Maximum available profits of $1.09 per contract – including the net credit pocketed on the spread – pad the investor’s wallet if shares in Sprint surge 28.5% to exceed $5.00 by January 2011 expiration day.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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