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Option Brief: So far this week, Nokia Corporation (ADR) (NYSE:NOK) has added 3% to trade at $7.80, and is on pace to finish the week atop both its 10-week and 20-week moving averages for the first time since mid-January. Against this backdrop, calls were once again the options of choice yesterday, with roughly 31,000 contracts exchanged -- a 38% mark-up to the stock's average daily volume, and more than 12 times the number of NOK puts traded.
About one-third of the action transpired at the May 7 call, where more than 10,700 contracts changed hands. Digging deeper, a block of 8,462 contracts traded for $1.00 apiece -- closer to the ask price at the time, suggesting they were bought. Plus, open interest skyrocketed at the strike overnight, confirming the initiation of new positions.
Assuming the calls were bought to open, the trader expects NOK to extend its upward momentum over the next couple of months. More specifically, the buyer will begin to profit if NOK climbs back atop $8 (strike price plus premium paid) by options expiration on Friday, May 16. The shares haven't been north of $8 since mid-January, when the security was flirting with two-plus-year highs.
Should the stock remain south of the strike through expiration, the buyer will forfeit the entire premium paid for the calls. However, it's encouraging that Nokia Corporation's (ADR) (NYSE:NOK) Schaeffer's Volatility Index (SVI) of 42% sits just 6 percentage points from an annual low, suggesting short-term options are attractively priced right now, from a historical standpoint.