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Option Brief: Nokia Corporation (ADR) (NYSE:NOK) hasn't seen the north side of $9 since May 2011 -- and was last seen 1.4% lower at $7.99. This hasn't stopped a number of option traders in recent sessions from targeting a move back above this area over the next couple of months.
Taking a step back, NOK call volume has soared to more than three times what's typically seen at this point of the day, with roughly 14,000 contracts on the tape. (As a point of comparison, fewer than 400 puts have been exchanged.) Short-term options are in high demand, as evidenced by the equity's 30-day at-the-money implied volatility (IV), which is up 5.9% to 36.9% -- its loftiest perch since early May.
Specifically, the vast majority of the day's early call action has centered on the August 9 strike, where 9,500 contracts have been exchanged -- including a multi-exchange sweep of 3,816 that traded right at the open. A healthy portion of these calls went off on the ask side, and IV has edged higher, two indications that new bullish positions are being purchased.
Based on the volume-weighted average price (VWAP) of $0.18, these call buyers will realize a profit if NOK is sitting north of $9.18 (strike plus VWAP) at the close on Friday, Aug. 15 -- when the options expire. Gains are theoretically unlimited with each notch above this breakeven mark the stock settles at expiration, while losses are limited to 100% of the premium paid, should NOK close south of $9.
Today's call buyers were willing to pony up a bit more for their bullish forecast, though, considering IV at the August 9 call is inflated relative to Nokia Corporation's (ADR) (NYSE:NOK) 60-day historical (realized) volatility (35.4% vs. 30.2%). Simply stated, premium on these short-term contracts is more expensive than usual, from a volatility perspective.