Bulls Prep for Continued Run-Up in Sprint

Today’s tickers: S, SMH, AEM & XRT

S – Sprint Nextel Corp. – Shares in the third-largest U.S. mobile provider hit a new 2-year high today, rising as much as 5.9% earlier in the session to $5.90. The communications company’s share price took a big hit after AT&T and T-Mobile announced plans to merge back in March, but the stock has sky-rocketed in the two months since then, gaining 41.5% off its post-deal announcement low of $4.17. Perhaps shares were helped higher on news Leap Wireless International joined “team Sprint” in opposing the $39 billion acquisition of T-Mobile by AT&T. Shares in Sprint Nextel Corp. may also be higher ahead of the Thursday release of Google’s mobile-payment service, which will operate on Sprint’s phones. Investors positioning for the uptrend to continue over the long term initiated bullish plays in the November contract. It looks like traders are employing ratio call spreads, buying roughly 2,500 calls at the November $7.0 strike for an average premium of $0.31 each, and selling around 5,000 calls up at the higher November $8.0 strike at an average premium of $0.14 apiece. Net premium required on average to establish the trade amounts to just $0.03 per contract. Ratio call spreaders stand prepared to make money in the event that Sprint’s shares surge 19.2% over today’s high of $5.90 to surpass the average breakeven price of $7.03 by expiration day in November. Maximum potential profits of $0.97 per contract are available on the transaction should the price of the underlying stock jump 35.6% to settle at $8.00 at expiration. Sprint Nextel Corp. shares last traded above $7.03 back in September 2008. The sale of twice as many of the higher-strike calls substantially lowered the price at which call spreaders break even, but also ups the amount of risk undertaken on the position. The uncovered short calls may result in losses in the event that shares spike above the upper breakeven price of $8.97 at expiration in November. Options implied volatility on the wireless provider is up 6.2% to arrive at 44.67% as of 1:00pm in New York.

SMH – Semiconductor HOLDRs – A sizable bearish put spread initiated on the Semiconductor HOLDRs Trust ETF this morning suggests one options strategist expects the price of the underlying fund to continue to decline ahead of June expiration. Shares in the SMH, an exchange-traded fund that tracks the performance of 18 semiconductor companies, are currently down 0.30% to stand at $35.10 as of 11:15am in New York. The largest holdings in the SMH represent a combined weight of nearly 59.0% and include Texas Instruments (TXN), Intel Corp. (INTC), Applied Materials (AMAT) and Altera Corp. (ALTR). The bearish play on the SMH may hint at expectations for bearish movement in the price of these chip makers’ shares, as well. The options player responsible for the spread appears to have purchased 7,500 puts at the June $34 strike for a premium of $0.42 each, and sold the same number of puts at the lower June $32 strike at a premium of $0.11 apiece. Net premium paid to initiate the spread amounts to $0.31 per contract. The trader makes money if shares in the SMH fall another 4.0% from the current price of $35.10 to breach the effective breakeven price of $33.69 by expiration day next month. Maximum potential profits of $1.69 per contract are available to the investor in the event that SMH shares drop 8.8% to trade below $32.00 at expiration. Shares in the fund last traded below $32.00 in December 2010.

AEM – Agnico-Eagle Mines Ltd. – Call options on the gold mining company are in high demand this morning, with shares in Agnico-Eagle Mines rising as much as 3.2% during the session to touch an intraday high of $63.99. It looks like some traders are positioning for the company’s shares to continue to rebound over the next couple of months. Agnico-Eagle’s shares struggled over the past 6 months, with the stock falling 31.5% from a 52-week high of $88.20 on December 7, down to a 2011 low point of $60.42 on May 13. The stock is up roughly 6.0% from its lowest of the year, and call buyers today are looking for shares to extend gains. Trading traffic in AEM calls is heaviest at the July $65 strike where more than 7,600 calls changed hands on paltry previously existing open interest of just 27 contracts. Call buyers paying an average premium of $2.25 per contract appear to be generating most of the volume at that strike. Bulls long the calls profit if shares in Agnico-Eagle Mines rally another 5.1% over today’s high of $63.99 to surpass the average breakeven price of $67.25 by expiration day in July. Signs of optimism on the stock spread to the higher July $67.5 strike where another 485 call options were picked up at an average premium of $1.44 each. Nearly 700 calls changed hands at that strike against open interest of just 61 contracts. Investors populating Agnico-Eagle today are exchange roughly 13 call options on the stock for each single put in play just before 12:00pm on the East Coast.

XRT – SPDR S&P Retail ETF – Shares in the retail SPDR ETF increased as much as 1.25% during the first half of the trading session to touch an intraday high of $52.92, but it looks like one investor is positioning for a pullback in the retail sector by July expiration. The trader initiated a bear put spread, buying 4,388 puts at the July $51 strike for a premium of $1.13 each, and selling the same number of puts at the lower July $46 strike at a premium of $0.28 a-pop. The net cost of the transaction amounts to $0.85 per contract, thus positioning the put player to profit in the event that shares in the XRT drop 5.2% off today’s high of $52.92 to breach the effective breakeven price on the spread at $50.15 by July expiration. Maximum potential profits of $4.15 per contract are available to the trader should the price of the underlying fund plunge 13.1% in the next couple of months to trade below $46.00 at expiration. Shares in the XRT have not dipped below $46.00 in 2011.