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While Sprint Nextel Corporation (NYSE:S - 5.67) is preparing to take its turn in the earnings confessional ahead of the open on Thursday, option players are betting on another bottom-line win in today's session. Calls have easily emerged as the options of choice, with roughly 44,000 contracts changing hands, or more than double the average intraday call volume. By comparison, approximately 900 puts have crossed the tape.
Digging in deeper, the lion's share of today's volume crossed in one block at S' April 6 call. Although this block of 39,882 contracts traded right in between the bid and the ask prices at $0.10, volume is outstripping open interest, and implied volatility has ticked higher, suggesting these positions may have been bought to open. In this scenario, S needs to power above the $6.10 mark (strike plus premium paid) by the close on Friday, April 19 -- when the options expire -- in order for these out-of-the-money calls to be profitable. This breakeven level is a 7.6% premium to S' current perch.
Shorter-term optimists have set their sights on the stock's February 5.50 call, which has seen around 1,100 contracts trade. The majority of these have crossed at the ask price, and implied volatility has risen 1.6 percentage points, pointing to the initiation of new long calls. Breakeven for these in-the-money calls is at $5.76 (strike plus the volume-weighted average price of $0.26), or 1.6% above present levels.
From a wider sentiment standpoint, it has been puts, not calls, that have been popular in S' options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.79 ranks in the 94th percentile of its annual range. In other words, puts have been accumulated over calls with more rapidity just 6% of the time within the past year.
Technically, S has been powering up the charts throughout the past 52 weeks, with the stock up around 131% in that time. However, the equity seems to have run out of steam recently, with the shares hovering near breakeven on a year-to-date basis. In fact, the security is trading 1.2% lower in today's session, after S&P Capital cut its price target on S by $1 to $6.50.
As touched upon, S is scheduled to unveil its quarterly report before the market opens this Thursday. The wireless service provider has bested analysts' bottom-line expectations in each of the last four quarters, and Wall Street has forecast a per-share loss of 46 cents for the company's fourth quarter. Should the stock fail to garner enough earnings-induced momentum to tackle the aforementioned breakeven marks, the most today's call buyers can lose is the initial premium paid.