S – Sprint Nextel Corp. – The wireless and wireline telecommunications company was one of the 10 most actively traded stocks on the New York Stock Exchange as of 1:00 pm ET this afternoon, and was also one of the most actively traded in terms of options volume today. Sprint’s shares earlier rallied 2.30% to record an intraday high of $4.44, but are currently up a lesser 1.15% at $4.39 as of 2:30 pm ET. Shares were perhaps higher on reports out this morning that suggested Sprint is currently looking at a possible November release date for Samsung’s Galaxy Tablet, which is a device aimed at rivaling Apple’s iPad. The vast majority of contracts exchanged on Sprint Nextel Corp. today were put options, but it does not look like investors are initiating bearish positions. One cautiously optimistic investor likely initiated the delta neutral transaction initiated in the January 2011 contract this afternoon. It appears the trader bought 8,000 puts at the January 2011 $4.0 strike at an average premium of $0.375 each and purchased a large chunk of shares of the underlying stock at approximately $4.35 apiece. The transaction suggests the trader expects shares to appreciate over the next 5 months. But, he has shelled out additional premium to get long downside protection in case Sprint’s shares falter. Protection kicks in if shares slip beneath the average breakeven price of $3.625 ahead of expiration day in January 2011. Finally, activity in the September contract involves put options as well, but is a much different trading strategy. It looks like a large chunk of 20,000 put options were purchased at the September $4.0 strike for premium of $0.04 apiece. But, we suspected the trade may not be as bearish as it first appears because open interest at that strike is sufficient to cover all 20,000 lots and then some. After taking a look at past trades that contributed to the 29,375 lots of put open interest at the September $4.0 strike, it seems like the purchase of puts today is the work of a bullish player booking profits by closing out previously established short put stances. Back on August 3, an investor sold 10,000 September $4.0 strike puts at a premium of $0.10 each. Twenty days later, on August 23, another chunk of 10,000 puts were sold at the same strike for approximately $0.11 in premium apiece. The transactions may or may not be related, but if they are it is certainly one way for a Sprint-bull to reel in profits. In this scenario, the investor banks net profits of $0.065 per contract or total gains of $130,000.00, by buying back the 20,000 lots at the significantly cheaper price of $0.04 each. The put transaction was untied.
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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