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Sprint Corporation (S) Traders Eye a Quick Move to Double-Digits

Sprint Corporation's April 10 call saw buy-to-open activity on Monday

by 4/1/2014 9:46 AM
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Call players have been active in Sprint Corporation's (NYSE:S) options pits of late, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 10 sessions, traders have bought to open more than seven calls for each put, resulting in a call/put volume ratio of 7.49. What's more, this ratio ranks in the 82nd percentile of its annual range, meaning long calls have been initiated over puts at an accelerated clip.

It was more of the same on Monday, when S calls outpaced puts by a more than 3-to-1 margin. The most sought-after position was the April 10 call, where 16,919 contracts traded. The majority of these changed hands at the ask price, implied volatility (IV) shot 8 percentage points higher, and open interest soared overnight -- the most of any strike. Simply stated, it seems safe to assume that a fresh batch of bullish bets was purchased.

Monday's increased demand for short-term options was evident in the 30-day at-the-money IV for S, which jumped 9.9% to 62.7% -- its loftiest close since Feb. 10. Meanwhile, with earnings due out later this month, the stock's Schaeffer's Volatility Index (SVI) has increased to 64% from its March 18 reading of 55%, and now ranks in the top third of its annual range. In other words, premium for the equity's front-month options has been on the rise.

This rush toward long calls isn't too surprising, considering S has rallied nearly 24% from its Feb. 5 low of $7.42 to trade at $9.19, thanks to an assist from its rising 20-week moving average. Amid this upward momentum, though, short interest jumped 24.7% in the last two reporting periods, and now accounts for a healthy 7.9% of the stock's available float. In light of this, a portion of the recent call buying -- particularly at out-of-the-money strikes -- could be at the hands of short sellers hedging against any additional upside.

As touched upon, Sprint Corporation (NYSE:S) will take its turn in the earnings confessional ahead of the April 29 open. S has bested analysts' bottom-line estimates in two of the past three quarters, resulting in an average gains of 4.6% and 11.4% in the subsequent day and week, respectively.


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