Sprint, Verizon Options Heat Up Amid Telecom Headlines

Demand for Sprint and Verizon options has seen an uptick, ahead of tomorrow's expected net neutrality update

Apr 25, 2017 at 3:15 PM
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Telecom stocks are in focus this week, in large part due to corporate earnings and M&A buzz. On top of that, FCC Chair Ajit Pai said the commission will vote to undergo a "comprehensive review" of media regulations on May 18, and he's expected to propose revised net neutrality rules during a speech on Wednesday, attempting to preserve principles while relaxing regulations. Amid a busy calendar, options traders have come out in force, and today have targeted Sprint Corp (NYSE:S) and Verizon Communications Inc. (NYSE:VZ).

Sprint Options Traders Bet on a Bearish Reversal

Sprint stock is surging today on broad-market tailwinds, up 2.1% at $8.89. In fact, the shares have broken out above their year-to-date breakeven level and 50-day moving average, which have conspired to act as short-term resistance recently, and S stock has more than doubled year-over-year.

Despite the show of technical strength, Sprint options traders are showing signs of skepticism. Specifically, puts are being exchanged at six times the usual intraday rate, with Trade-Alert highlighting one speculator who likely bought to open a block of 21,450 June 7 puts ahead of next Wednesday morning's earnings report. The options trader shelled out nearly $367,000 ($0.17 premium paid * number of contracts * 100 shares per contract) to bet on (or hedge against) S shares breaching $7 by June expiration -- in five-month-low territory -- or risk losing the initial cash outlay.

Today's Sprint options trading marks a departure from the norm seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). With the stock performing so well lately, speculators have bought to open three times as many calls as puts across those exchanges during the last two weeks.

If Sprint Corp continues to shoot higher -- perhaps aided by an upbeat earnings report -- it could benefit from analyst upgrades and short-covering. After all, 90% of brokerage firms rate S shares a "hold" or worse, and 19.4% of Sprint's float is sold short, translating into two weeks' worth of pent-up buying power, at the stock's average daily volume.

Verizon Call Options Spike as Stock Sinks

Meanwhile, VZ is one of three Dow stocks sitting out the broad-market rally, down 0.7% at $46.71, amid reports that Verizon has topped AT&T Inc.'s (NYSE:T) bid to buy Straight Path Communications Inc (STRP). In general, VZ stock has been tanking since a lackluster earnings report last week, and in the process, it's breached its lower Bollinger Band.

That isn't stopping options traders from targeting Verizon calls. Specifically, the contracts are running at double the expected intraday clip, with a 4,245-contract lot being opened at the weekly 5/12 47.50 strike -- though, it's unclear whether the block's being bought or sold. If the trader is buying, her goal is for VZ stock to topple $47.50 by the close on Friday, May 12; if selling, she's hoping that level will serve as a near-term ceiling.

In general, it's a much better time to be buying short-term premium on Verizon Communications Inc., rather than selling it, due to the recent post-earnings volatility crush. The stock's Schaeffer's Volatility Index (SVI) of 13% ranks below 91% of readings from the past year, hinting at muted volatility expectations being priced into near-term contracts.

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