Call activity in Sprint is far from bullish

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Call activity is surging in Sprint Nextel, but the sentiment behind it appears bearish.

Roughly 20,000 contracts each traded at about the same time in the November 4.50 and 3.50 calls. It appears that the 4.50s were bought for about $0.20 against open interest while the lower strikes were sold for $0.55. This suggests that an existing short position was rolled down.

The investor probably owns the mobile-phone stock and had sold the options as part of a covered call strategy. With today's move, the trader lowered the price at which he or she will sell the shares by $1 and accepted a $0.35 credit in return. Given that the new calls are in the money, they're essentially saying that the shares will stay below $3.85 through expiration. (See our Education section)

S is up 3.88 percent to $3.62 in afternoon trading, but it has lost one-third of its value in the last month. Much of that drop occurred after a disastrous earnings report on July 28, which disclosed that more than 100,000 customers had dropped its service.

Overall option volume in the name is about twice the average amount so far today.



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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