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Taking Profits in Sprint Nextel Corporation (NYSE:S)

S option buyers close out short-lived April 6 calls

by 2/15/2013 1:59 PM
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Perhaps tidying up their portfolios ahead of the holiday weekend, Sprint Nextel Corporation (NYSE:S - 5.88) option traders seem to be taking some bullish bets off the table. Today's call volume is running at more than double what is typically expected, with roughly 30,000 contracts changing hands, the large majority of which have traded on the April 6 call.

This out-of-the-money call was in focus just 10 days ago on Feb. 5, when a block of nearly 40,000 contracts traded for $0.10 per contract (making the entire block worth $400,000). Today, three large blocks totaling roughly 25,000 contracts have traded for $0.12 per contract. Excluding commissions, that's a profit of $0.02 per contract, or 20%. Two cents may not sound like much, but on a 40,000-contract block, that's a net profit of $80,000, in under two weeks.

Meanwhile -- assuming this is the same trader at work -- he has left 15,000 contracts on the table, should profits continue to appreciate. From Feb. 5 through today, delta on this trade has expanded from 0.33 to 0.41, which means the option now has a 41% chance of being in the money when April options expire.

Overall, the demand for Sprint Nextel calls has been growing of late. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), nearly 700 calls have been bought to open for every 100 puts during the past 10 trading days. The resultant 10-day call/put volume ratio of 6.84 is higher than 80% of the past year's readings.

Elsewhere, the equity's Schaeffer's put/call open interest ratio (SOIR) has declined from 0.91 on Feb. 1 to 0.75 currently, as call open interest has appreciated, relative to put open interest. The current SOIR is lower than 44% of the past year's readings, suggesting short-term traders are slightly more call-focused than usual.

Technically speaking, S has been quietly making lots of headway, up roughly 165% since hitting an annual low of $2.20 nearly a year ago. The shares have been consolidating south of the $6 mark for the last several weeks but recently bounced off potential support from their 20-week moving average, and could be poised for their next phase higher.


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