Option Bulls Want to Ring Up Profits in Sprint
Someone apparently sees Sprint Nextel as the next comeback kid.
OptionMonster's tracking systems detected the purchase of 77,000 January 2014 3 calls for $0.65 and the sale of 77,000 January 2014 5 calls for $0.22. Volume was more than 10 times open interest in each strike, and it was the largest transaction in the entire market yesterday.
Buying those 3 calls locks in a $3 entry price on the stock for the next 1 1/2 years, while selling the 5 calls locks in a sale price of $5 over the same period. The trader paid $0.43 to own that spread, which would translate into a profit of 360 percent on a move back to $5.
Sprint shares rose 0.74 percent yesterday to close at $2.74. The stock would have to almost double for that bullish call spread to reach its maximum value, but given how much more the trade could make on a percentage basis, one can see the kind of leverage that options can provide.
The drawback of the strategy is that if the debt-laden wireless company fails to rally, the entire position will expire worthless.
Total option volume in Sprint was 15 times greater than average yesterday, with calls outnumbering puts by a bullish 41-to-1 ratio.
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David Russell is a reporter and writer for OptionMonster. Russell has no positions in Sprint.