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Sprint Nextel Bears Call for More Downside

S speculators are purchasing weekly put options

by 12/21/2012 12:44 PM
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The shares of Sprint Nextel Corporation (NYSE:S - 5.45) have succumbed to broad-market headwinds, and it looks like some options speculators are anticipating more short-term downside for the telecom concern. So far today, S has seen roughly 14,000 puts cross the tape -- more than twice its average midday put volume, and more than three times the number of S calls exchanged.

Attracting notable attention is the 12/28 5.50-strike put, which has seen more than 1,400 contracts traded on open interest of just three contracts, pointing to an influx of fresh initiations. Plus, 98% of the weekly puts have changed hands at the ask price, suggesting they were bought.

More specifically, the puts have traded at a volume-weighted average price of $0.12, meaning the buyers will profit if S dips below the $5.38 marker (strike minus average premium paid) within the next week, which represents the contracts' shelf-life. However, even if the security rebounds north of the strike, the most the buyers stand to lose is the initial premium paid for the puts.

Expanding our sentiment scope, we find that today's taste for bearish bets is nothing new for S. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than two puts for every call during the past couple of weeks. In fact, the equity's 10-day put/call volume ratio of 2.10 stands just 2 percentage points from a 52-week high, suggesting speculators are picking up pessimistic positions at a near annual-high clip.

As such, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.09 ranks in the 72nd percentile of its annual range. Or, in simpler terms, short-term options players are more put-skewed than usual right now.

In the soon-to-be front-month January series of options, the out-of-the-money 5 strike is most popular, with more than 66,000 puts outstanding. In the short term, this glut of puts could translate into an options-related foothold for S. In addition, the stock could find an ally in its 20-week moving average, which has ascended into the $5.40 neighborhood. This trendline hasn't been breached on a weekly closing basis since mid-May.


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