Options Intelligence Reports: Sprint Nextel Corp. (S), Wells Fargo & Co. (WFC) & Lamar Advertising Co. (LAMR)
Contrarian Player Constructs Three-Legged Bullish Spread On Sprint Nextel Corp.
S ñ Sprint Nextel Corp.
A sizeable long-term bullish transaction involving 30,000 option contracts on Sprint Nextel Corp. indicates one optimistic player expects shares in the telecommunications company to rebound ahead of February 2011 expiration. Since reporting third-quarter earnings the morning of October 27, 2010, Sprintís shares have fallen as much as 20.4% from a high of $4.85 on October 26 to todayís lowest value of $3.86. It looks like the 20% correction in the price of the underlying stock has made conditions favorable enough for this contrarian strategist to establish a relatively cheap bullish stance on Sprint. The trader enacted a three-legged bullish position, selling a chunk of put options in order to partially finance the purchase of a debit call spread. Sprintís shares have recovered off their intraday low of $3.86 and are currently down 2.2% to stance at $4.01 as of 2:55 pm. The investor sold 10,000 puts at the February 2011 $3.5 strike for a premium of $0.21 each, purchased 10,000 now in-the-money calls at the February 2011 $4.0 strike at a premium of $0.43 per contract, and sold 10,000 calls at the February 2011 $5.0 strike for a premium of $0.16 apiece. Net premium paid to initiate the three-legged spread amounts to $0.06 per contract. The investor responsible for the transaction makes money if Sprintís shares rally 1.25% over the current price of $4.01 to surpass the effective breakeven point at $4.06 by expiration day in February. The bullish trader will walk away with maximum potential profits of $0.94 per contract if Sprintís shares surge 24.7% and trade above $5.00 ahead of expiration next year. The short stance in Feb. 2011 $3.5 strike puts implies the investor sees shares trading above $3.50, but also indicates his willingness to have 1 million shares of the underlying put to him at that price if the puts should land in-the-money by expiration. Interestingly, Sprint is scheduled to report fourth-quarter earnings ahead of the opening bell on February 10, 2010, which is eight calendar days before the February contract call and put options expire.
WFC ñ Wells Fargo & Co.
Bullish traders snapped up in- and out-of-the-money calls on Wells Fargo today, which may indicate that some options market participants are gearing up for a sharp rally in the price of the underlying shares. Shares in Wells Fargo & Co. climbed 2.2% in late afternoon trading to secure an intraday high of $26.50. Investors expecting the rally to continue purchased more than 4,200 in-the-money calls at the November $26 strike for an average premium of $0.78 apiece. Call buyers at this strike are poised to profit should shares rally above the average breakeven price of $26.78 by November expiration. More than 20,355 call options were picked up at the November $29 strike for an average premium of $0.05 each versus previously existing open interest of 9,403 contracts at that strike. Investors holding these contracts make money if Wells Fargoís shares jump 9.6% to trade above the average breakeven price of $29.05 by expiration day this month. Of course, call buyers paying $0.05 apiece could take profits ahead of expiration regardless of whether or not the calls land in-the-money if premium on the calls continues to appreciate. Bulls also looked to the December $29 strike where another 1,800 call options were purchased for an average premium of $0.24 a-pop. WFCís shares last traded above $29.24 back on June 3, 2010.
LAMR ñ Lamar Advertising Co.
The outdoor advertising company that sells advertising space on billboards, buses, shelters, benches and logo plates popped up on our ëhot by options volumeí market scanner due to put activity in the November contract. It looks like investors are picking up bear put spreads ahead of Lamarís third-quarter earnings report, which hits the airwaves before the market opens tomorrow morning. Lamarís shares rallied more than 2.00% in the first half of the session to touch an intraday high of $34.70, but have since pared earlier gains to stand 0.60% lower on the day at $33.81 as of 2:30 pm in New York. Put players populating Lamar Advertising purchased roughly 1,000 now in-the-money puts at the November $34 strike for an average premium of $1.44 each, and sold about the same number of puts at the lower November $31 strike at an average premium of $0.43 apiece. Net premium paid to establish the bearish spread amounts to an average of $1.01 per contract. Thus, investors are poised to profit should LAMRís shares fall another 2.4% from the current price of $33.81 to slip beneath the average breakeven point on the downside at $32.99 by November expiration. Maximum potential profits of $1.99 per contract are available to put spreaders in the event that Lamarís shares plunge 8.3% lower to trade below $31.00 by expiration day in a few weeks time.
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