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Sprint Nextel Trader Calls for a Long-Term Ascent

An S LEAPS trader rolled his bullish position up

by 8/16/2012 10:59 AM
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The shares of Sprint Nextel Corporation (NYSE:S - 5.31) have more than doubled since late April, ascending into annual-high territory atop their 10-day and 20-day moving averages. Against this backdrop, it appears one long-term option trader upped the bullish ante on the communications giant.

During the course of Wednesday's session, S saw roughly 238,000 calls cross the tape -- more than four times its average daily call volume, and close to five times the number of S puts exchanged. Most active were the January 2014 3- and 4-strike calls, which saw symmetrical blocks of 39,000 contracts change hands.

However, the 3-strike calls traded for $2.68 -- closer to the bid price, suggesting they were sold. Meanwhile, the 4-strike calls crossed for $2.04 -- closer to the ask price, hinting at buyer-driven volume. Considering call open interest depleted at the January 3 strike, and skyrocketed at the January 4 strike, it looks like the speculator rolled his position up and out. Or, simply put, the investor sold his in-the-money 3-strike calls, and used part of the proceeds to buy higher-strike calls in the same series. As such, the trader will profit if the shares of S topple the $6.04 level (strike plus premium paid) by early 2014.

From a broader sentiment standpoint, the collective mood among Sprint's short-term options crowd is decidedly less bullish. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.15 indicates that puts outnumber calls among options expiring within three months. Even more telling, this ratio registers in the 76th percentile of its annual range, implying that near-term option traders are much more put-heavy than usual at present.

Echoing that, despite outperforming the broader S&P 500 Index (SPX) by a whopping 109 percentage points during the past three months, the majority of analysts remain wary of S. Currently, the security boasts just 10 "buy" or better endorsements, compared to 16 "hold" or worse recommendations. Plus, the consensus 12-month price target on the equity sits at a paltry $4.78, representing a discount to the stock's closing price of $5.39 on Wednesday.

As alluded to earlier, S has been on fire during the past few months, peaking at $5.49 yesterday. In early trading today, the security is taking a breather, shedding 1.6% to flirt with the $5.31 level -- despite a price-target boost to $6.50 from $6 at Citigroup. Going forward, however, there's plenty of room for additional price-target boosts or upgrades to translate into a contrarian tailwind for S.

Daily Chart of S since April 2012 With 10-Day and 20-Day Moving Averages


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