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Call volume is accelerated on Level 3 Communications, Inc. (NYSE:LVLT - 20.21) today, with the bullishly skewed contracts trading at roughly three times the average intraday volume. The lion's share of activity has centered on Level 3's January 2014 20-strike call. Nearly all of the 1,000 contracts that have changed hands here have done so at the ask price, and only 59 positions currently make up open interest, pointing to the initiation of new positions.
The at-the-money calls are being purchased for a volume-weighted average price (VWAP) of $3.12, meaning speculators will begin to profit with each stride north of $23.12 (strike plus VWAP) LVLT takes over the next 10 months. Should the stock fail to maintain its perch above the strike price, the most today's bulls have risked is the initial premium paid. Delta for the LEAPS call is sitting at 0.59, or 59%, suggesting a roughly 3-in-5 chance the position will expire in profitable territory.
Today's trend toward longer-term calls echoes the withstanding sentiment exhibited by shorter-term options players, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.29. In addition to this ratio showing that call open interest more than triples put open interest among options expiring in three months or less, it also ranks lower than 92% of similar readings taken in the past year. In other words, near-term traders have been more call-heavy toward LVLT only 8% of the time within the past year.
Looking at Level 3 Communications' technical backdrop reveals a longer-term struggle. The equity has surrendered roughly 24% over the past 52 weeks; however, the majority of this time has been spent churning in the $18-to-$25 range. An earnings-induced slide in mid-February not only brought the stock to the lower end of this range, but also pulled it south of its psychologically significant 200-day moving average -- where LVLT has been wallowing ever since.
The equity is little moved in today's session, and was last seen lingering near $20.21.