Bulls run on Frontier Communications


Shutterstock photo

Frontier Communications has been making steadily higher lows since March 2009, and now traders are using options in hope of riding a rally higher.

optionMONSTER's Heat Seeker tracking system detected the purchase of more than 12,000 July 5 calls for $2.95 against no existing open interest. The trade pushed options volume in the rural phone company to 17 times greater than average.

FTR Chart FTR rose 0.58 percent to $8 in afternoon trading. The shares have been moving mostly sideways since the October 2008 stock-market crash, but keep rebounding at higher levels on each pullback.

The company has spent more than a year taking over more than 4 million telephone lines from Verizon Communications. Part of the deal includes a spinoff company that will subsequently be merged with FTR.

Today's call buyer seems to think the stock will rally as the transaction is completed. Purchasing in-the-money contracts allows him or her to leverage small gains in the share price. Because they have a delta of 1, the options will appreciate on a dollar-for-dollar basis with the stock.

As a result, if FTR climbs 25 percent to $10, the calls will gain about 69 percent. The strategy is a relatively low-cost way that the leveraging power of options can be used to amplify movements in a share price. (See our Education section)

Calls outnumbered puts in the name by more than 8 to 1 today, which reflects the bullish sentiment.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com