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Option Brief: Nokia Corporation (ADR) (NYSE:NOK) is brushing off the overall market malaise, hitting its highest point since May 2011 ($7.76) and bringing its year-over-year gain to nearly 200%. Options players have responded in odd fashion, by seemingly placing longer-term bets that this rally will peter out.
Call volume is running at twice its usual intraday pace, and the 53,000 calls traded have nearly quadrupled the number of puts on the tape. But this skew doesn't tell the full story: the most active strike, the April 2014 9-strike call, may have been targeted by neutral-to-bearish call sellers.
Almost 20,000 calls have traded here, easily surpassing existing open interest. Implied volatility has ticked higher as well, which further points to opening trades. A number of mid-sized blocks crossed the tape in a multi-exchange sweep at or near the bid price, suggesting they were initiated on the sell side.
Assuming these calls were sold to open, the trader is hoping NOK stays wedged below the $9 level through April 2014 expiration. Should this happen, the calls would expire worthless, and the call seller retains the premium collected today as profit.
If NOK continues its move higher, however, the call writers could be assigned, and obligated to deliver NOK shares for $9 apiece, no matter how high they might be trading at the time. Of course, between now and expiration, the trader could opt to roll the call option to a higher strike or later month (or exit the trade entirely).
The shares are up 13.8% to trade at $7.66 since Monday's close, thanks to a well-received showing in the earnings confessional followed by some bullish analyst notes. Nokia Corporation (ADR) (NYSE:NOK) has now taken out potential round-number resistance at $7.50, and eased through the $7.46 mark, which is notable as it represents a 20% advance off the stock's Oct. 9 low of $6.22. Continued upward momentum would not be welcome news for today's call sellers, as the stock could gain a lot of ground in the five-plus months before April options expire.