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Nokia Corporation (ADR) (NOK) Bears See A Change of Direction Ahead

NOK put buyers flood the October 3.50 strike

by 7/29/2013 1:36 PM
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While overall option activity for Nokia Corporation (ADR) (NYSE:NOK) is deflated today, the stock has experienced a heavy flow of traffic through its October 3.50 put, where 5,150 contracts -- more than one-third of the total intraday volume -- have changed hands for a volume-weighted average price (VWAP) of $0.16. The majority of these contracts went off at the ask price, while implied volatility has increased by 1.8 percentage points, collectively pointing to the initiation of long puts.

Technically speaking, NOK has grown 88.2% year-over-year, and has outperformed the broader S&P 500 Index (SPX) by 16.2 percentage points during the past three months. With that being said, today's put buyers are betting NOK -- currently docked at $3.97 -- will shave off 15.9%, to finish south of the breakeven price of $3.34 (strike price less the VWAP) by the close on Oct. 18, when these options expire. Should NOK fail to drop below the 3.5 strike -- depths unreached since mid-June -- upon expiration, the most the put buyers risk losing is the initial premium paid.

Today's preference for near-term puts represents a change of pace in NOK's options pits. Specifically, the stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.86, which ranks in the 44th percentile of its annual range. In other words, near-term speculators are slightly more call-heavy than usual.

Outside the options pits, the brokerage bunch is skeptical toward NOK, which boasts six "holds" and eight "sell" or worse suggestions, compared to five "buy" or better endorsements. What's more, the stock's consensus price target of $3.41 sits at a discount to NOK's present trading level. Should the stock's venture northward continue, this leaves the door wide open for a round of upgrades and/or price-target hikes, which could serve as contrarian tailwind for NOK.

Of note, Nokia Corporation (ADR) (NYSE:NOK) is scheduled to report earnings on Oct. 17, one day before October options expiration. During the past eight quarters, the stock has, on average, dropped 2.9% the day after the announcement, and 4% the following week.


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