Call Traders Pound Sprint Amid M&A Speculation

Reuters is reported that a deal between Sprint and T-Mobile is imminent

by Josh Selway

Published on Apr 27, 2018 at 2:27 PM
Updated on Apr 27, 2018 at 2:29 PM

Sprint Corp (NYSE:S) shares are up 8.3% today at $6.50, after Reuters reported the company is finalizing a merger deal with T-Mobile (TMUS). This is the second time this month the stock has rallied on such news, jumping over 17% back on April 10. Options traders apparently think even more upside could be coming, based on today's intraday trading activity.

More than 47,000 calls have traded so far today, six times the daily average, with more than half the volume taking place at the May 7 call. The largest trade here was a block of 17,122 contracts that crossed shortly after the open, and were seemingly bought to open for 30 cents each. This would put the trader's initial cash outlay at $513,660 (contracts purchased * premium paid * 100 shares per contract), with breakeven standing at $7.30 (strike plus premium paid).

Coming into today, options traders had largely been ignoring Sprint. That's based on the fact that total open interest of 490,277 contracts ranked in just the 10th annual percentile. As one would expect, though, today's elevated demand has driven up premiums for near-term contracts, evidenced by a 22.5% surge in the 30-day at-the-money implied volatility, which now stands at 65.7% -- just 1 percentage point from a 12-month high.

Looking back, Sprint stock is pacing for its highest close since early November, overcoming recent resistance from the 160-day moving average. On a year-over-year basis, however, the security has shed more than 28% of its value.

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