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.
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