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Up nearly 37% on a year-over-year basis, Nokia Corporation (ADR) (NYSE:NOK) was hit with a barrage of options activity on Wednesday, as roughly 52,000 calls and around 20,000 puts crossed the tape throughout the day -- almost three times the security's average daily volume. While one group of traders placed bullish bets on the mobile phone maker, a number of other speculators sold calls and puts to wager on longer-term resistance and support, respectively.
Jumping right in, the January 2014 5-strike call saw about 10,000 contracts switch hands at a volume-weighted average price (VWAP) of $0.18. The majority of these calls were exchanged at the ask price, and open interest rose by north of 5,400 contracts overnight -- confirming that more than half of yesterday's volume was comprised of newly added positions. By purchasing the calls to open, traders are expecting NOK to ascend past breakeven at $5.18 (strike price plus the VWAP) by January expiration. This denotes expected upside of 30.5% from Wednesday's closing price of $3.97.
At last check, the delta for this call was perched at 0.28, meaning it has a more than 1-in-4 chance of finishing in the money. However, even if the shares remain south of the strike price over the next several months, the most yesterday's bulls stand to lose is the initial premium paid. However, since short interest currently accounts for 5.7% of the stock's available float -- or more than 14 days' worth of pent-up buying demand, at NOK's average pace of trading -- some of these call buyers could actually be skeptics looking to hedge their shorted shares.
Elsewhere, the January 2014 4-strike put and the January 2015 7-strike call were also in high demand, as each saw more than 18,000 contracts change hands yesterday -- nearly all of them at the bid prices, indicating they were sold. Both strikes saw significant overnight surges in open interest, again signaling the creation of fresh positions. In the case of the former, speculators are counting on NOK to remain atop the $4 mark through January expiration, while the latter group of traders are wagering that the stock will stay below the $7 level through January 2015 expiration.
Should either scenario come to fruition, the options will expire worthless, allowing the traders to retain the initial premium collected -- $0.47 and $0.21, respectively -- which also represents the maximum profits on the plays. It should be noted that the call sellers could actually be Nokia Corporation (ADR) (NYSE:NOK) shareholders looking to earn some extra income -- or pick up a bit of downside protection -- by writing covered calls.