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Bearish speculators are taking advantage of today's sharp move higher in Nokia Corporation (ADR) (NYSE:NOK - 3.08) to stock up on longer-term put options. Midday, put trading is three times more active than usual -- with 53,000 contracts trading already -- and is roughly doubling call activity so far today.
Notably active is the January 2013 3.5-strike put, where roughly 21,000 contracts have traded on open interest of 7,200. Most blocks have crossed the tape at or near the ask price, and today's volume-weighted average price (VWAP) for the put is $0.85. It's probable, therefore, that these in-the-money puts are being bought to open.
The current delta for this bearish option is 53%, meaning there is a slightly-better-than 50/50 chance at present that the put will still be in-the-money at expiration. This also means the contract will increase in value by $0.53 for every (theoretical) $1.00 NOK happens to lose. Breakeven for the trade is $2.65, or a 14% drop from current levels.
Even while NOK has outperformed the broader S&P 500 Index (SPX) by almost 50 percentage points in the past two months, bearish speculation has not slowed down. In fact, short interest rose by more than 21% during the last month and represents 7.2% of the equity's available float.
In the options pits -- specially at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- the put/call volume ratio during the past 50 days weighs in at 1.04, indicating that puts have been bought-to-open at a slightly faster pace than their call counterparts. This ratio ranks higher than 81% of the past year's readings, however, pointing toward a bearish disposition among option buyers.
Finally, Wall Street analysts continue to discount NOK as well. Just one of 23 analysts following the stock names it a "buy" or better, leaving 14 "holds" and eight "sells" or "strong sells." Also, the average 12-month price target of $2.53 is solidly below the stock's current price.
While the shares have gained nearly 25% in the last month, they remain 53% lower on a year-over-year basis. And further gains won't come easy, as the stock stares at resistance overhead in the form of its 10-month moving average (at $3.73) and its closer 160-day trendline (at $3.52). Both of these trendlines have acted as support on a near-consistent basis since February 2011.