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Nokia Corporation (ADR) (NOK) Traders Brace for a Slide

Two potential motives may help explain Nokia Corporation (ADR) put buying

by 3/27/2014 10:23 AM
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Option Brief: Nokia Corporation (ADR) (NYSE:NOK) calls and puts traded in near parity yesterday, as about 45,000 total contracts were on the tape by the closing bell. Accounting for more than one-quarter of the action was the mobile concern's May 6 put, which saw north of 12,000 contracts change hands throughout the session.

Seventy-five percent of the volume at that deep out-of-the-money (OOTM) strike crossed off the ask price, suggesting the contracts were purchased. What's more, open interest swelled by nearly 9,700 positions overnight -- the most of any strike -- making it safe to assume long positions were created.

By buying the NOK puts to open, Wednesday's traders likely had one of two possible motives. On the one hand, they may expect the shares to drop from their current perch at $7.26 to below $6 by the close on Friday, May 16, when the options expire. More likely, however, given the option's deep OOTM status and Nokia's long-term gains -- the shares have more than doubled in value in the last year -- the puts may be intended as protection, as shareholders look to lock in a minimum exit price should the equity take an unexpected short-term tumble. Regardless of the motive, the most the buyers have at stake is the initial premium paid.

One event that could have fueled some of yesterday's put buying is Nokia Corporation's (ADR) (NYSE:NOK) first-quarter earnings report, which is scheduled for Tuesday, April 29. While the company has matched or exceeded analysts' per-share profit estimates in seven of the last eight quarters, the shares have averaged a loss of 4.5% in the week following the event.


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