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Nokia Rebound Fuels Accelerated Option Buying

NOK call buyers are betting on more short-term upside

by 11/19/2012 1:37 PM
Stocks quoted in this article:

Like most of the broader equities market, the shares of Nokia Corporation (ADR) (NYSE:NOK - 2.91) are on the rise this afternoon. What's more, some options players are betting on the mobile mogul to extend its climb through the end of the week, with traders targeting weekly calls.

At last look, NOK has seen about 28,000 calls cross the tape more than 50% above its average intraday call volume. For comparison, roughly 4,300 NOK puts have changed hands. Garnering notable attention has been the weekly 3-strike call, which has seen more than 4,500 contracts change hands on open interest of just 65 contracts, pointing to an influx of new initiations. Plus, a healthy portion of the calls have traded at the ask price, suggesting they were bought.

By buying the calls to open, the investors are expecting NOK to surmount the $3 level by Friday's close, when the weekly options expire. More specifically, the calls traded at a volume-weighted average price (VWAP) of $0.03, meaning the buyers will make money if NOK conquers the $3.03 level (strike plus average premium paid) by the end of the week. Should NOK remain south of the strike, however, the buyers' maximum risk is capped at the premium paid for the calls.

Broadening our sentiment scope, we find that today's appetite for calls is just more of the same for NOK. The stock sports a 10-day call/put volume ratio of 10.01 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), indicating that speculators have bought to open 10 NOK calls for every put during the past two weeks. Plus, this ratio stands just two percentage points from a 52-week high, implying that option buyers are initiating bullish bets at a near annual-high clip.

On the other hand, short interest jumped 6.4% during the most recent reporting period, and now accounts for 9.2% of NOK's total available float. At the equity's average daily trading volume, it would take more than six sessions to unwind all of these pessimistic positions. As such, it's possible that the accelerated call buying of late could be due to hedging activity among short sellers.

On the charts, NOK has spent the past few years stair-stepping to new lows, pressured beneath its 10-month and 20-month moving averages. In today's session, however, the stock is up 5.1% to flirt with the $2.91 level, thanks to escalating hopes for strong sales of its newly debuted Lumia smartphones.


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