Volatility play looks for move in Sprint
David Russell | firstname.lastname@example.org
optionMONSTER's screener programs detected a giant trade in the wireless stock yesterday, with 75,000 January 2014 calls purchased for $0.63. The large trade dwarfed the strike's open interest of just 5,260 contracts at the beginning of the day and was clearly a new position.
Less than two minutes after the calls were bought, almost 3 million Sprint Nextel shares were sold in a single block. That indicates the use of a delta-neutral strategy, which includes offsetting long and short positions.
The purpose of the trade is to be directionally agnostic on the stock and is long options alone, thereby isolating implied volatility in the shares. It normally works best with long-dated, out-of-the-money contracts because they're most sensitive to changes in implied volatility. (See the discussion of vega in our Education section for more.)
S fell 5.41 percent to $4.90 yesterday, retreating in the wake of a blistering rally over the spring and summer. It's now back near long-term resistance, which could be leading some investors to expect either a sharp drop or accelerated gains if it breaks this level.
The option activity pushed overall volume in the name to more than 9 times greater than average in the session.