Frontier Communications (NYSE:FTR) put volume spikes


Heavy put volume hit the tape in Frontier Communications Corp. (NYSE: FTR ) on Tuesday without a clear catalyst, but it looks like investors took moderately bearish stances on the company.

At 9:50 a.m. EST, a block of 20,000 front-month July 5-7.5 puts spreads changed hands . Just three minutes later, another block of 20,000 August 5-7.5 put spreads crossed the tape. Current open interest of the July 5 puts is four contracts and the July 7.5 puts are home to current open interest of 5,000 contracts. On the other hand, the August 5 puts are home to current open interest of 82 contracts and current open interest in the August 7.5 puts is roughly 12,000 contracts. This options action suggests both put spreads were initiated to open. The front-month 5-strike puts crossed for two cents per contract (closer to the bid price at the time of the trade) while the July 7.5 puts changed hands for an average price of 22 cents per contract (closer to the ask price when the volume hit the tape), suggesting investors paid a net debit of 20 cents per bear put spread. This pricing action is similar to the August 5-7.5 put spread, as the 5-strike puts changed hands for three cents per contract (closer to the bid price when the trade crossed the tape) and the 7.5-strike puts traded two cents lower than the ask price at 43 cents per contract, meaning the August bear put spread cost the investor a net debit of 40 cents per spread. The front-month bear put spread will turn a maximum profit of $2.30 (the difference between the strikes minus the premium paid) if FTR shares are trading below $5 at July options expiration. The August put spread buyer will make a maximum profit of $2.10 if the stock is trading below $5 at expiration (the stock needs to drop at least 35% before investors make money on these spreads). Maximum loss on these bear put spreads is the net debit paid per spread.

You can visualize the risk/reward dynamics of these bear put spreads and other stock and option plays by opening a free virtual trading account - by doing so, you gain access to essential trading tools such as the probability and profit/loss calculators.

FTR did not announce any news today, and the stock dropped 11 cents, or more than 1%, to $7.75 during morning trading. The company announced earnings of 16 cents per share (beating estimates by one cent) on May 6, and the market does not expect another earnings release until around Aug. 3.

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.

This article appears in: Investing , Options

Referenced Stocks: FTR

Karla Yeh

Karla Yeh

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