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Pre-Earnings Bulls Eye Sprint Corporation (NYSE:S)

Out-of-the-money, front-month bets placed in S ahead of earnings next week

by 10/21/2013 12:19 PM
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Option Brief: With earnings due at the end of the month, Sprint Corporation (NYSE:S) is capturing the attention of short-term call traders today. Already, more than 5,400 calls have changed hands, nearly tripling the typical intraday pace and trumping put volume by a factor of almost nine. Meanwhile, the stock has slipped 0.3% lower to $6.38.

Most active by a mile is the November 7 call, where more than 5,100 contracts have traded, nearly all at the ask price. A number of large and mid-sized blocks have crossed the tape, with implied volatility in advance mode, suggesting buy-to-open orders. If these end up translating as new bullish bets, they represent the opinion that S will charge higher over the next few weeks, a time period that encompasses the company's next earnings report.

Given the unpredictability of earnings, it is possible that some of the demand for out-of-the-money calls could be on the part of short sellers. Nearly 13% of the stock's float is sold short -- and short interest has picked up considerably in the last two reporting periods -- so some of these bears may be looking for short-term hedges for their bets. Whether today's call buyers consist of speculative bulls or conservative bears, they are willing to open their wallets. Sprint's Schaeffer's Volatility Index (SVI) of 39% is higher than 74% of the past year's worth of readings, suggesting short-term options are relatively pricey, from a volatility perspective.

Sprint Corporation (NYSE:S) has only reported earnings on one occasion following the summertime shake-up, which saw SoftBank Corp. take control of a majority of the company once known as Sprint Nextel. On July 30, the telecom name issued a negative earnings surprise, but nonetheless jumped 7.3% higher that day. This time around, analysts are looking for Sprint to post a loss of 21 cents per share when it reports on Wednesday, Oct. 30, ahead of the open.

For further analysis, visit our Sprint Corporation (NYSE:S) quote page for sentiment indicators, charts, and commentary.


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