Sprint Nextel has been a rocket ship since last spring, and one investor is using options to smooth the ride.
Our monitoring programs detected the purchase of 24,925 August 7 calls for $0.50 and the sale of 49,850 August 8 calls for $0.15. Volume was below open interest in the 7s, so there are two possible interpretations of the activity.
One is that the investor owns stock in the wireless company and previously sold the August 7s as part of a covered call strategy. He or she then closed those contracts and rolled the position to the higher strike while doubling its size. The trader is now on the hook to sell twice as many shares, but for $1 more. (See our Education section)
Alternatively, both the 7s and the 8s might have been opened. In that case the trade was a ratio spread at a cost of $0.20 and a maximum profit of 400 percent on a move to $8. Gains would erode above that level and turn to losses over $9.
S is up 0.14 percent to $7.21 in morning trading and has almost tripled in the last year. The gains initially resulted from strong quarterly results and were boosted further by takeover action as Japan's SoftBank bought a majority stake. This week, Dish Network made a competing offer.
The next earnings report is scheduled for Wednesday, April 24.
Total option volume is more than twice the daily average so far in the session, according to the Heat Seeker. Calls account for more than two-thirds of the activity.
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