Volatility trade on Sprint Nextel

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Someone apparently thinks that Sprint Nextel is going places this spring.

optionMONSTER's tracking systems detected the purchase of 25,000 June 4 puts for $0.15 and 25,000 June 5 calls for $0.17, resulting in a net cost of $0.32. The so-called strangle trade is designed to benefit from increased volatility in the debt-heavy telecom stock.

S Chart S rose 7.47 percent to $4.46 percent yesterday after the company announced that it would sell prepaid phones through Wal-Mart Stores and said its first 4G phone, the EVO 4G, will be available on June 4. Raymond James also upgraded the shares to outperform from market perform and predicted a turnaround.

The stock has failed to participate in most of the post-March 2009 market rally and is down 10 percent in the last year. However, sentiment seems to be shifting in the sector after related company MetroPCS Communications surged on strong earnings last week amid better traction with prepaid plans.

S also had fewer customer defections the last time it reported results on April 28. The news suggests the possible improvement of an ongoing concern with the company, which got cut to junk by Standard & Poor's on March 4 because it was losing subscribers.

The strangle trade will benefit if volatility increases from its current 58 percent level. The trader will also make money if it trades above $5.32 or below $3.68 by expiration. (See our Education section)

Earlier in the session other investors bought about 15,000 calls, apparently as an outright bullish bet. Overall options volume in S was 4 times greater than average in the session.

(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 The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: S

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