Why bulls are dialing Leap Wireless

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Bullishness has been spreading among pre-paid cellular companies, and now they're targeting Leap Wireless.

optionMONSTER's Heat Seeker tracking system detected the purchase of 3,500 July 15 calls for $1 and $1.05 and the sale of an equal number of July 13 puts for $1.45. Volume was more than 4 times open interest in both strikes.

The trade resulted in a credit of about $0.45 and will earn theoretically infinite profits if the shares push higher, with the gains accelerating over $15. It will lose money below $12.55.

LEAP fell 4.99 percent to $13.01 in late morning trading. Yesterday it rallied more than 9 percent after a major shareholder said it was trying to shake up its board of directors. The investor, Pentwater Capital Management, said the company has mismanaged its cost structure and handset inventory. It also questioned LEAP's strategic focus on broadband services.

Pre-paid wireless carriers appear to be in a secular growth trend as customers opt for the flexibility of forgoing a contract. Industry leader MetroPCS Communications has almost tripled in the last 13 months, and rival Sprint Nextel has started receiving wave of bullish activity in recent weeks. LEAP has badly lagged both.

Today's option trade reflects a belief that the shares will climb in coming months. Short interest also represented about 12 percent of the float as of mid-February, which could accentuate the gains if the stock moves higher.

Overall option volume in the name is five times the daily average 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: LEAP , PCS , S

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