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Nokia Lures Options Speculators Amid Buyout Talk

Bears -- and possibly bulls -- focus on NOK's front-month 2.50 strike

by 8/1/2012 1:29 PM
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Shares of Nokia Corporation (NYSE:NOK - 2.50) surged this morning amid speculation that Lenovo Group Limited was considering a bid for the telecom company. Although the equity has since pared its gains after the head of the computer hardware firm dismissed the rumors, NOK is still seeing a flurry of options activity on both sides of the trading fence. Roughly 48,000 calls have changed hands -- which is three times the norm -- while around 31,000 puts have crossed the tape, more than doubling the equity's expected intraday volume.

Looking more closely at the data, it appears that more than 13,800 calls have traded at the August 2.50 strike -- with the majority of them crossing between the ask and bid prices, making it difficult to discern whether they were bought or sold. Meanwhile, the August 2.50 put has seen more than 11,100 contracts traded. About half of them were exchanged at the ask price, pointing to buyer-driven activity. Because the volume at these at-the-money strikes exceeds current levels of open interest, we can assume that new positions are being added here today.

From a wider sentiment scope, however, puts seem to be the options of choice for NOK. The Schaeffer's put/call open interest ratio (SOIR) checks in at 1.31, indicating that puts outnumber calls among options expiring in the next three months. In fact, this ratio is just one percentage point shy of a annual high, meaning near-term options traders have rarely been more put-heavy toward the stock during the past year.

What's more, NOK's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio stands at 2.19, signaling that puts bought to open have more than doubled calls during the past 10 sessions. This ratio arrives in the 94th percentile of its annual range, implying that speculators have been snapping up bearish bets over bullish at a much faster-than-usual pace.

There doesn't seem to be much love for NOK among the brokerage bunch, either. Only two "strong buy" endorsements have been bestowed upon the stock, compared to 13 lukewarm "holds" and seven "sell" or worse suggestions.

This lackluster attitude toward NOK is certainly understandable, considering its year-over-year decline of nearly 55%, to say nothing of the fact that the equity has trailed the broader S&P 500 Index (SPX) by north of 25 percentage points during the past three months. Still, today's 3.7% gain has pushed the stock atop its 10-week moving average, a trendline it has not surmounted on a weekly closing basis since late March. However, should today's "news" prove to be nothing more than wishful thinking, August bears may have something to cheer about prior to expiration.


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