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How a trader cashed in on the T-Mobile/Sprint merger talks

T-Mobile shares rallied more than 4 percent Tuesday after CNBC's David Faber reported that the telecom giant and Sprint were in advanced merger talks.

"This was a name that was long rumored [to be in] deal talks with Sprint," Dan Nathan of RiskReversal.com told CNBC's "Fast Money" on Monday. The rumor sent the options market into a frenzy this week, with one trader cashing in on Tuesday's report.

"Call volume exploded … [seeing] 10 times the average daily call volume [on Monday]," said Nathan.

In one eye-catching trade, there was an apparent purchase of 20,000 of the October 67.5-strike calls for 32 cents. Those calls have nearly tripled in value and are now worth $1 each. In just one day, that trader made more than $1.2 million in profit on the trade.

Looking at a chart of T-Mobile, Nathan noted that "the stock has cooled off, and if you look to the upside ... this [stock] could get going if that deal gets done sooner." T-Mobile shares are up more than 10 percent this year.

T-Mobile shares were trading at the $64.35 range midday Tuesday.

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