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 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
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)
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