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Some optimistic option speculators are using the occasion of a slight pullback in Nokia Corporation (ADR) (NYSE:NOK - 3.80) to hop into short-term long calls. Overall call and put volume is running in parity -- 41,000 contracts each -- and call volume is running ahead of average intraday volume by more than 40%.
One of the largest option blocks trading in NOK today is the February 4.50 call, as 5,000 contracts traded at the ask price of $0.15 per contract. As implied volatility has surged 5.9 percentage points, these calls were likely bought to open by bullish NOK speculators who are targeting short-term upside. Gains in this long call are unlimited once NOK advances beyond the breakeven point of $4.65 (strike plus premium paid). Losses, meanwhile, are capped at 100% of the premium paid, should NOK be trading south of the strike price when the options expire.
While Nokia has had a modest setback of late (related to a raid of its production unit in India), the stock continues to trade above technical support at its 10-week moving average. NOK has gained almost 134% from its mid-July annual low of $1.63, and has outperformed the S&P 500 Index (SPX) -- in terms of relative strength -- by 53 percentage points during the past three months.
Despite this impressive price action, Wall Street remains leery of the mobile communications concern. While 21 analysts follow the shares, only one deems NOK a "buy" or better, leaving 11 "hold" ratings, two "sells," and seven "strong sell" votes.
Options players, on the other hand, have shown increased optimism. During the past 10 days, 590 calls have been bought to open for every 100 puts, resulting in a call/put volume ratio of 5.90 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio is higher than all but 6% of the past year's readings, suggesting demand for long calls has approached an annual peak.
Today's action is reflective of this trend, and the traders are looking for a 22% pop higher out of the stock before February options expire at the close on Feb. 15.