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Option Brief: Investors were cheered by the promise of new technology at Nokia Corporation (ADR) (NYSE:NOK) on Tuesday, sending the stock to its highest point since May 2011 ($7.41). The smartphone maker's options pits were bustling as well, with total volume outpacing what's typically seen by 76%.
The day's most active option -- the weekly 10/25 7.50-strike call -- also saw the greatest change in open interest overnight. Nearly 6,800 of the 14,600 contracts traded at the strike yesterday translated as new positions. Given that the large majority of the volume traded off the ask price and implied volatility rose by 3.2 percentage points, it's likely these contracts were purchased to open. In short, traders are betting on continued advances in NOK shares through the end of this week, when the options will expire.
Risk is limited to 100% of the premium paid -- the volume-weighted average price of $0.07 -- should NOK be trading below $7.50 at Friday's closing bell. This is a 15-cent, or 2%, advance from yesterday's closing price of $7.35. The stock's Schaeffer's Volatility Index (SVI) of 46%, however, is lower than 93% of the past year's readings, meaning short-term options have rarely been cheaper, from a volatility perspective.
As noted, NOK gained some ground in Tuesday's trading after the Finnish communications concern rolled out its first tablet device. Also helping lift the stock was news that noted hedge fund manager Dan Loeb has been accumulating shares. Nokia Corporation (ADR) (NYSE:NOK) is also due to unveil third-quarter earnings next Tuesday morning, but this report will not impact yesterday's weekly call buyers.