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Clearwire Corporation (NASDAQ:CLWR) saw a flood of trading activity on Wednesday, as roughly 20,000 calls and 25,000 puts changed hands during the course of the session -- more than triple the equity's average daily option volume. Upon closer inspection, it looks as though the bulk of this activity crossed in the form of a short straddle, with one speculator expecting minimal movement by the security over the course of the next few months.
More specifically, matching blocks of 20,000 calls and puts were sold simultaneously at the September 3.50 strike yesterday -- the former for $0.20 each, and the latter for $0.35 apiece, yielding a net credit of $0.55 per pair of contracts. Meanwhile, open interest surged at both strikes overnight, signaling the initiation of new positions.
Essentially, the trader is betting on CLWR to finish exactly at $3.50 by September expiration. This would render both options worthless, and allow him to pocket the net credit received, which also represents the maximum profit on the play. Should the stock decline between now and Sept. 20's closing bell, his risk is capped at $2.95 (strike price less the net credit). However, if CLWR ascends past the $4.05 level (strike price plus the net credit), the spread strategist's losses are theoretically unlimited.
From a broader sentiment scope, Clearwire Corporation calls have been heavily favored by the options crowd. In fact, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 55.53, indicating traders have bought to open more than 55 calls for every put during the past two weeks. This ratio ranks higher than 84% of comparable readings taken within the last 12 months, reflecting a stronger-than-usual preference for calls over puts.
CLWR has been a technical standout lately, boasting an impressive year-over-year gain of 156%. On the charts, the shares continue to trade atop their 10- and 20-week moving averages, which have served as support since August 2012.
Also of note, the telecom firm informed shareholders on Monday that Sprint Nextel Corporation's (NYSE:S) latest buyout bid of $2.97 per share is the firm's best offer so far, marking the latest development in the acquisition war between Sprint and DISH Network Corp (NASDAQ:DISH). At last check, CLWR is off 2.7% to hover at $3.30.