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New Phone Can't Rescue Nokia Corporation (ADR) (NOK) from Bears

NOK's October 3.50 put is, by far, the stock's most-traded option of the day

by 7/23/2013 12:54 PM
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In spite of the fact that Nokia Corporation (ADR) (NYSE:NOK) revealed its new, 4.7-inch Lumia 625 Windows Phone this morning, activity is fairly sluggish in the Finnish company's options pits. Around 12,000 contracts have traded so far, or less than half the expected intraday volume.

The most popular strike, however, is NOK's October 3.50 put, where nearly 5,100 contracts have traded at a volume-weighted average price (VWAP) of $0.16. Almost 90% of the puts changed hands at the ask price, indicating they were bought, and implied volatility is up 1.8 percentage points, suggesting the creation of new long positions.

In order for the traders to profit, they need the shares of Nokia to descend below $3.34 -- which is the strike price, less the VWAP -- by October options expiration. That breakeven point also represents the maximum potential gain on the transaction, and would occur if the stock reached zero. By contrast, the maximum potential loss is capped at the premium paid at initiation.

Option hawks in general are skeptical of the mobile phone maker. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NOK sports a 10-day put/call volume ratio of 0.80. That figure has been higher just 19% of the time over the past 52 weeks, which tells us that traders are picking up puts over calls with more rapidity than usual.

Likewise, Wall Street is aligned pessimistically against the equity. A mere five analysts covering Nokia rate it a "buy" or better, compared to seven "holds" and another seven "sell" or worse suggestions. What's more, the consensus 12-month price target sits at $3.41, which is a significant discount to NOK's current per-share price of $4.00.

Technically speaking, Nokia Corporation (ADR) (NYSE:NOK) is a bit of a mixed bag. The stock has more than doubled in the past year, but has struggled more recently, being little better than flat in 2013.


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