IB Options Brief: Sprint Nextel Corp. (S) & Frontier Communications Corp. (FTR)

---

Bulls Scoop Up Sprint Nextel Corp. Calls      

S ñ Sprint Nextel Corp.
Medium-term bullish positioning is building up in Sprint Nextel Corp. options today with shares in the name trading 3.00% higher on the session at $4.84 as of 12:20pm in New York. Investors expecting shares in the provider of various communications products and services to extend gains through May expiration engaged in plain-vanilla call buying, purchasing the options out-right to position for shares to potentially reach a new 52-week high in the next couple of months.

Volume is heaviest at the May $6.0 strike where 20,750 calls have changed hands versus previously existing open interest of 7,482 contracts. It looks like roughly 18,000 of the calls were picked up at a premium of $0.08 each. Call buyers make money if Sprintís shares jump 25.6% over the current price of $4.84 to surpass the effective breakeven price of $6.08 by expiration day in May. Sprint Nextel Corp. is scheduled to report first-quarter earnings before the market opens for trading on April 28, 2011.

 

FTR ñ Frontier Communications Corp.
Put volume on the communications company jumped today after sizable trades were initiated in the May contract. It looks like investors responsible for the put activity may be purchasing the contracts to brace for bearish movement in the price of the underlying stock. Shares in Frontier Communications Corp. are currently down 0.90% to stand at $8.00 as of 12:30pm. The selection of the May contract put options could be coincident with the firmís first-quarter earnings report, which is scheduled for release before the opening bell on May 5, 2011.

One trader appears to have purchased some 3,000 puts at the May $8.0 strike for a premium of $0.40 each. The investor starts to make money on the put-acquisition if shares in FTR decline 5.0% from the current price of $8.00 to breach the effective breakeven point at $7.60 by May expiration day.

Volume is greatest, however, at the lower May $7.0 strike where 15,000 put options traded for a premium of $0.10 each. The contracts traded to the middle of the bid/ask spread available at the time of the transaction. If the investor is buying the large chunk of puts, pessimism reigns supreme in Frontier Communications Corp. options today. But, it is possible that the contracts sold for $0.10 each.

A seller of the options keeps the premium received as long as the price of the underlying stock exceeds $7.00 through expiration day, while a buyer of the contracts starts to make money if shares in Frontier drop below $6.90 in the next couple of months. The sharp rise in demand for put options on FTR helped lift the overall reading of options implied volatility on the stock 11.7% to 24.49% in early-afternoon trade.


--------------------------------------------------------------------------------------

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

---

View Andrew Wilkinson's post archive >