Option Bears Target Surging Sprint Corp (S) Amid M&A Chatter

Sprint Corp (S) just hit a fresh two-year high after SoftBank CEO met with President-elect Donald Trump, but the stock is surrounded by considerable pessimism

Dec 7, 2016 at 2:52 PM
facebook X logo linkedin

Sprint Corp (NYSE:S) is getting a major boost today, after yesterday's meeting between SoftBank CEO Masayoshi Son and Donald Trump prompted the president-elect to tweet about a potential $50 billion investment from the Japanese firm. Considering SoftBank is a majority owner in S, an analyst at Oppenheimer said the meeting could possibly "be a precursor" to a merger between Sprint, T-Mobile US Inc (NASDAQ:TMUS), and DISH Network Corp (NASDAQ:DISH) -- which SoftBank has long been hoping for. Also lifting S shares is news the company will partner with Pokemon Go creator Niantic Inc. The stock was last seen up 7% at $8.74, after hitting a fresh two-year high of $8.90 earlier, but options traders are busy betting on a pullback.

Digging right in, S puts are crossing at four times the typical intraday rate -- with roughly 20,000 contracts on the tape. And with around 22,000 calls traded at last check, total options volume is on pace to finish in the 98th percentile of its annual range. Leading the action by a wide margin is the weekly 12/9 8.50-strike put, where speculators appear to be purchasing new positions -- expecting the stock to slip back below $8.50 by the week's end, when the series expires.

Taking a step back, put buying has been popular in Sprint's options pits in recent weeks. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.52 sits higher than 88% of all comparable readings from the past year. Of course, given the stock's impressive technical performance this year, it's possible some shareholders have been picking up puts to protect paper profits.

Regardless, near-term options buyers are currently getting a relative bargain on S. Specifically, the stock's short-term options are pricing in unusually low volatility expectations at the moment. This is evident from the equity's 30-day at-the-money implied volatility of 50.2% and its Schaeffer's Volatility Index (SVI) of 47% -- readings that rank in the 13th and 10th percentiles of their respective 12-month ranges.

Outside of the options pits, some bears have been hitting the exits. Short interest on the security fell by nearly 10% during the most recent two-week reporting period. That said, more than 23% of the Sprint's available float is still tied up in these bearish bets, representing about six sessions' worth of trading, at the stock's typical daily volume. That means a short-squeeze situation -- which could give the shares an extra boost -- may just be getting started.

Meanwhile a round of upbeat analyst attention could also be a boon for S. At present, only two of the 19 brokerage firms tracking the stock recommend buying it. What’s more, Sprint's average 12-month price target of $5.51 sits at a 37% discount to current trading levels.

From a technical standpoint, Sprint Corp (NYSE:S) has been a standout performer, roughly quadrupling in value from its late-January record low of $2.18. The shares have been trending higher since then, with a bounce off the 100-day moving average last month helping the stock break out above resistance in the $7 region. One note of caution, though, the stock's 14-day Relative Strength Index (RSI) of 79 is parked in overbought territory, suggesting a near-term pullback may be in the cards.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI