Two Ways Skeptics Can Bet On Struggling NTELOS Holdings Corp (NTLS)

NTELOS Holdings Corp has shed nearly half its value after announcing a strategic refocus

Dec 2, 2014 at 3:06 PM
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To say it's been a terrible day for NTELOS Holdings Corp (NASDAQ:NTLS) would be an understatement. The equity plunged to a record low of $4.35 earlier after announcing a strategic refocus, and was last seen churning near $4.58 -- almost 43% below where it started the session. Meanwhile, 30-day at-the-money implied volatility on NTLS has more than doubled to its current perch at 119.9% -- an annual high. Not surprisingly, the stock is on the short-sale restricted list -- and option volume has soared to 37 times the average intraday pace, as traders look for alternate ways to bet bearishly on the shares.

Drilling down, NTLS' short-term contracts are in high demand. The two most active strikes are the stock's December 5 call and put, where a collective 2,028 contracts have traded. With volume outstripping open interest at each strike, it seems safe to assume new positions are being initiated.

The majority of calls went off at the bid price -- suggesting they were sold -- while almost all of the puts crossed at the ask price, indicating they were bought. While the goal for each set of traders is for NTLS to stay south of $5 through the close on Friday, Dec. 19 -- when the front-month options expire -- the risk-reward scenario is quite different.

Specifically, the most the call writers stand to gain is the initial credit collected, should NTLS stay below the strike through expiration. However, losses can be quite substantial; should the stock rally back above the strike, the traders could be on the hook to deliver shares of NTLS at $5 apiece, a discount to what they'd get on the Street.

Meanwhile, the put buyers will profit if the equity is sitting south of breakeven at $4.78 (strike less the volume-weighted average price of $0.22) at expiration, with gains accruing on a move down to zero. Risk, on the other hand, is limited to the initial cash outlay, should NTELOS Holdings Corp (NASDAQ:NTLS) settle the week north of the strike price.


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