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The shares of Sprint Nextel Corporation (NYSE:S - 5.82) have advanced nearly 160% during the past year, but have spent the past few months dawdling south of familiar resistance in the $6 region. Nevertheless, the options crowd remains optimistic, as evidenced by yesterday's appetite for short-term calls.
During the course of the session, the telecom titan saw roughly 34,000 calls cross the tape -- nearly twice its average daily call volume, and more than three times the number of puts exchanged. Most popular by a landslide was the February 6 call, which saw about 12,700 contracts change hands. The majority of the calls traded at the ask price, and call open interest at the back-month strike swelled overnight, underscoring our theory of buy-to-open activity.
By purchasing the calls to open, the buyers are expecting S to barrel through resistance in the $6 neighborhood within the next couple of months. More specifically, the calls crossed at a volume-weighted average price (VWAP) of $0.07, meaning the buyers will reap a reward if S topples the $6.07 level (strike plus VWAP) -- in territory not explored since June 2011 -- by February options expiration. However, even if S remains beneath this long-term roadblock, the buyers' maximum risk is limited to the initial premium paid for the calls.
From a sentiment perspective, yesterday's preference for short-term calls marks a change of pace in the options arena. The stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.14, indicating that puts outnumber calls among options with a shelf-life of three months or less. Furthermore, this ratio stands higher than 76% of all other readings of the past year, suggesting near-term options traders are more put-skewed than usual right now.