T-Mobile Option Bull Banks a Tidy Profit After Sprint Surge

One T-Mobile option trader placed a well-time call buy on Monday

Sep 19, 2017 at 2:25 PM
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T-Mobile US Inc (NASDAQ:TMUS) is trading up 5.3% at $65.08, after CNBC reported the wireless carrier has resumed merger talks with Sprint. Options traders have been quick to react, too, with 32,265 calls and 15,915 puts on the tape -- six times what's typically seen and total options volume pacing in the 99th annual percentile. This heavy attention to calls is just more of the same in TMUS' options pits, though, with one trader yesterday placing a well-timed bullish bet.

In the two weeks leading up to today's merger news, speculative players had traded roughly 160,000 calls and 36,000 puts on TMUS. Call buying has been unusually popular relative to put buying at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) across this time frame, too, per the stock's 10-day call/put volume ratio of 8.84 -- in the 88th annual percentile.

And while this call activity is certainly notable in and of itself, it was one bullish trade in particular on Monday that caught our eye. Specifically, a block of 20,000 contracts -- or nearly one-third of the day's total call volume -- changed hands at the October 67.50 call, and Trade-Alert indicates the contracts were bought to open for $0.32 apiece. Today, the bid price on these front-month calls was last seen at $1.00, meaning this call buyer has already tripled their investment!

More broadly, the October and November 70 calls are home to the stock's top two open interest positions, with 35,000 and 26,559 contracts respectively outstanding. Data from Trade-Alert points to mostly buy-to-open activity at both the front- and back-month strike, meaning traders are betting on a breakout above $70 -- and into record-high territory -- over the next two months.

In fact, the highest T-Mobile stock has ever traded was $68.88, tagged on May 2. Since then, the shares have been drifting lower, and recently breached long-term support atop their 180-day moving average. While today's M&A-inspired gains have TMUS shares back above this trendline, they are running out of steam near $65 -- a level that's kept a tight lid on the equity since an early June bear gap.

tmus stock daily chart sept 19

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