Bulls want to ring up profits in Sprint

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Someone apparently sees Sprint Nextel as the next comeback kid.

Our tracking systems detected the purchase of 77,000 January 2014 3 calls for $0.65 and the sale of 77,000 January 2014 5 calls for $0.22. Volume was more than 10 times open interest in each strike, and it was the largest transaction in the entire market yesterday.

Buying those 3 calls locks in a $3 entry price on the stock for the next 1-1/2 years while selling the 5 calls locks in a sale price of $5 over the same period. The trader paid $0.43 to own that spread, which would translate into a profit of 360 percent on a move back to $5.

S rose 0.74 percent yesterday to close at $2.74. The stock would have to almost double for that bullish call spread to reach its maximum value, but given how much more the trade could make on a percentage basis, one can see the kind of leverage that options can provide.

The drawback of the strategy is that if the debt-laden wireless company fails to rally, the entire position will expire worthless. (See our Education section)

Total option volume in S was 15 times greater than average yesterday, with calls outnumbering puts by a bullish 41-to-1 ratio.

(A version of this post appeared on InsideOptions Pro yesterday.)



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

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


This article appears in: Investing , Options

Referenced Stocks: S

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