Volume Spike Investor

After a weekend review and screen in stock and options, Sprint Nextel Corp. (NYSE: S) stood out as a very unusual stock and also unusual in its options trading on Friday.  Most likely this was traders throwing on upside bets in case the Deutsche Telekom (NYSE: DT) bidders come in. It might seem odd that Thomas Weisel downgraded the stock this last week to Market Weight from Overweight.  But Friday’s trading review showed that over 86 million shares traded, almost double the average volume, and the stock itself closed up 9.7% at $4.28.

There were some options rolls that were seen as the SEPT-2009 CALLS were closed out, but the bets were placed on the OCT-2009 $5.00 CALLS with volume of 13,886 contracts versus an open interest of only 8,615 contracts.  With this one having been in the rumor mill for over a week now, we are shocked that the open interest in those $5.00 CALL strike is not significantly higher.  With a Friday close-out at $0.10 X $0.15, the simple bet here is that there is effectively a greater than 20% chance that a merger premium of 16% or more by the date of Friday, October 16.

Where this gets interesting is that the volume in call options gets bigger when looking out further.  On Friday we saw 15,675 contracts of the NOV-2009 $5.00 CALLS trade, versus an open interest of 30,755 contracts.  Also in November, there were 7,854 contracts of the $6.00 CALLS versus and open interest o f6,025 contracts ans some 10,074 contracts of the $8.00 CALLS versus an open interest of 10,466 contracts.

-JON C. OGG