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Despite Monday's modest pullback by Nokia Corporation (ADR) (NYSE:NOK - 3.26), option players displayed a preference for calls over puts throughout the session. Around 9,100 calls changed hands on the day, compared to roughly 3,900 puts. NOK's April 4 call was the most active strike, where 1,933 contracts crossed the tape, almost all at the ask price. With implied volatility up 7.7 percentage points, and open interest rising overnight, it seems that one group of speculators were hot to initiate bullish bets ahead of the company's April 18 earnings announcement.
By purchasing these deep out-of-the-money calls, traders expect NOK to rise above the $4 mark by the close on Friday, April 19, when front-month options expire. More specifically, the volume-weighted average price (VWAP) for the calls is $0.03, making breakeven $4.03 (strike plus VWAP), or 23.6% above present levels. While a move of this magnitude may seem overly optimistic, the stock's 20-day historical (realized) volatility currently rests at 30.5%. The options market doesn't seem too hopeful, though, considering at yesterday's close, delta for the call was docked at 0.11, implying an 11% chance the position will land in the money by expiration.
Expanding the sentiment scope reveals that calls have been favored over puts in recent weeks. Throughout the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 60,289 calls, versus 18,424 puts. What's more, the resultant call/put volume ratio of 3.27 ranks in the 89th percentile of its annual range, suggesting calls have been scooped up over puts at a faster-than-usual clip.
This rush toward bullish bets is a bit puzzling when looking at NOK's technical backdrop. In addition to lagging the broader S&P 500 Index (SPX) by close to 27 percentage points over the past 60 sessions, the stock has shed more than 40% year-over-year. Plus, the equity has been pressured lower by its descending 10-day moving average since late January.
However, it could be that Monday's call buyers are hoping for a post-earnings pop. As mentioned, the company is slated to step into the earnings confessional on Thursday, April 18. NOK has bested analysts' bottom-line expectations in three of the last four quarters, and Wall Street is calling for a per-share loss of five cents for the company's first quarter. Should the stock fail to rally above $4 by April expiration, the most yesterday's bulls stand to lose is the modest premium paid.