Stocks quoted in this article:
Option Brief: Nokia Corporation (ADR) (NYSE:NOK) is enjoying a 2.3% lead this afternoon to linger near $7.99, after Credit Suisse added the stock to its European Union and U.S. focus lists. Option players are taking kindly to the advance, sending call volume to more than two times its typical intraday pace. By the numbers, around 47,000 calls have changed hands, and a healthy portion of the day's volume has centered on two strikes used to initiate a long call spread.
Earlier this afternoon, two symmetrical blocks of 10,000 May 9 and May 10 calls simultaneously changed hands on the NASDAQ OMX PHLX (PHLX) -- the former at the ask price of $0.30 each and the latter at the bid price of $0.13 apiece. Volume outstrips open interest at each strike, and Trade-Alert confirmed the spread was opened for a net debit of $0.17 per pair of contracts. In other words, by establishing this moderately bullish strategy, the speculator reduced her cost of entry and breakeven level with the sold call, and forfeited the unlimited profit potential of a long call in the process.
The spread strategist will realize her maximum profit potential of $0.83 (the difference between the two strikes, less the net debit), should NOK finish at or above $10 at May options expiration. However, she can still accrue a profit once NOK moves north of the breakeven mark of $9.17 (bought strike plus net debit). Risk -- should the stock continue to trade south of $9 -- is limited to the initial cash outlay.