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Option Trader Eyes Extended Losses for Sprint Corporation (S)

Sprint Corporation's July 8 put was popular on Monday

by 6/17/2014 9:45 AM
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Sprint Corporation (NYSE:S) option traders have been increasing their bearish presence of late, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the past two weeks, the equity's 10-day put/call volume ratio on these exchanges has grown to 1.25 from 0.73, and now ranks in the 83rd percentile of its annual range. Simply stated, puts have been bought to open over calls at a faster-than-usual clip.

It's a trend that was witnessed on Monday, when puts traded at more than three times the daily average, and outpaced calls by a nearly 14-to-1 margin. Almost all of the day's activity centered on one strike; specifically, the July 8 put, where 30,272 contracts crossed the tape, mostly in one massive block of 28,559. By the looks of it, this speculator ponied up a big premium to bet on an extended slide for the telecom concern.

In fact, the block of 28,559 July 8 puts was exchanged at the ask price of $0.22 apiece, resulting in an initial net debit of $628,298 (number of contracts * premium paid * 100 shares per contract). Plus, open interest soared overnight, making it safe to assume that new positions were purchased. In order for this trader to profit, S must be sitting south of breakeven at $7.78 (strike less premium paid) at the close on Friday, July 18 -- when back-month options expire. Gains will accumulate on a move all the way to zero, while losses are limited to the initial cash outlay, should S settle north of the strike at expiration.

On the charts, Sprint Corporation has put in a dismal performance in 2014, with the shares off nearly 20% to trade at $8.61. However, considering S has spent just a handful of sessions exploring the south side of $8 this year, yesterday's put buying could protective in nature. In other words, a Sprint stakeholder may have bought the puts to lock in a minimum price at which to unload her shares, should the stock take a steeper tumble over the next five weeks.

Off the charts, Masayoshi Son -- CEO of Softbank, Sprint's majority owner -- is reportedly pressing for more discussion with U.S. regulators over a potential Sprint Corporation (NYSE:S)/T-Mobile US Inc (NYSE:TMUS) merger. In response to concerns over reducing the number of major domestic carriers to three from four, Son on Tuesday said, "Us becoming a more credible competitor in scale is something good for American consumers and citizens."


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