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Monday, February 26, 2024

Bulls Scoop Up Sprint Nextel Corp. Calls

 Today’s tickers: S, FTR, JTX & SBUX

S – 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 Sprint’s 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 – 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 firm’s 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.

JTX – Jackson Hewitt Tax Service, Inc. – Shares in the provider of tax return preparation services plunged 43.2% to an all-time low of $0.71 after reporting third-quarter earnings of $0.19 a share, which was far lower than the $0.31 per share analysts had been anticipating, ahead of the opening bell this morning. The firm said it is working with its lenders on a restructuring plan that could include a pre-packaged bankruptcy, according to Reuters. Not surprisingly, the second-largest tax preparer in the U.S. popped up on our scanners following bearish activity in its options. In-the-money put buyers are populating the front month as well as the April contract, suggesting shares may have further to fall in the near term. Traders purchased more than 500 in-the-money puts at the March $1.5 strike for an average premium of $0.75 each, and picked up another 270 puts at the lower March $1.0 strike for an average premium of $0.26 apiece. Put volume is heaviest at the April $1.0 strike where more than 2,200 puts changed hands on open interest of just 448 contracts. It looks like the majority, or around 2,100 contracts, were purchased at that strike for an average premium of $0.30 a-pop. Investors long the put options are poised to profit should shares in JTX slip beneath the average breakeven price to the downside at $0.70 by April expiration day. Options implied volatility on Jackson Hewitt is up 38.9% to stand at 221.96% as of 11:35am in New York.

SBUX – Starbucks Corp. – The specialty coffee company’s shares are bucking the trend today on news of a deal with Green Mountain Coffee Roasters, Inc. that will make Starbucks coffee and Tazo tea pods available to users of the single-cup Keurig coffee machines. Investors are cheering the agreement between the two companies, sending shares in both names up substantially today. Shares in Starbucks Corp. increased as much as 8.7% this morning to hit an intraday and more than four-year high of $37.56. Demand for SBUX options jumped on the announcement, sending implied volatility on the stock up, with the overall reading currently standing 14.1% higher on the session at 31.02% as of 11:50am. Investors are slightly favoring calls over puts, trading around 1.25 call options on Starbucks for each single put option in play thus far in the session. It looks like one strategist may be locking in the rally by purchasing a put spread in the July contract. The investor appears to have picked up 1,000 in-the-money puts at the July $38 strike for a premium of $2.85 each, marked against the sale of the same number of puts at the lower July $33 strike at a premium of $0.97 apiece. Net premium paid to initiate the transaction amounts to $1.88 each. The trader responsible for the put spread may be hedging a long position in the underlying, or could be positioning to profit from a correction in SBUX shares ahead of July expiration. Profits, or downside protection, kick in if shares in the coffee company slip 3.8% off today’s high of $37.56 to breach the effective breakeven price of $36.12 by expiration day in July. Maximum potential profits of $3.12 per contract are available to the put player should shares surrender 12.1% of their value to trade below $33.00 ahead of expiration. More than 36,000 option contracts changed hands on Starbucks Corp. in the first half of the session.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst


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