Sprint Nextel Corp. (S) – A number of options players are positioning for a rebound in shares of the telecommunications company by employing diverse trading strategies on the stock today. Sprint’s shares fell 1.5% to $3.89 by 11:45 am ET. Optimistic investors purchased approximately 5,100 calls at the October $4.0 strike for an average premium of $0.28 apiece. Call buyers are prepared to make money if the price of the underlying stock jumps 10.0% to surpass the average breakeven price of $4.28 ahead of expiration day in October. A longer-term bullish individual initiated a three-legged spread in order to position for a sharp recovery in Sprint’s shares by expiration day in January 2011. The investor appears to have sold 2,000 puts at the September $3.5 strike for an average premium of $0.39 each, purchased the same number of calls at the September $4.0 strike for premium of $0.54 apiece, and sold 2,000 calls at the higher September $5.0 strike for an average premium of $0.24 a-pop. The investor responsible for the transaction receives a net credit of $0.09 per contract, which he keeps as long as Sprint’s shares exceed $3.50 through expiration. Additional profits start to amass for the trader if shares rally above $4.00. Maximum available profits of $1.09 per contract – including the net credit pocketed on the spread – pad the investor’s wallet if shares in Sprint surge 28.5% to exceed $5.00 by January 2011 expiration day.
Apollo Group, Inc. (APOL) – Shares of the provider of educational programs and services rallied as much as 2.8% today to reach an intraday high of $42.65. Apollo’s shares seem to be continuing on the road to recovery this week, but one options investor populating the stock constructed a bearish stance in case the firm encounters bumps along the way. APOL’s shares, which are currently trading at $42.50, are down 36.3% since April 22, 2010, when the stock was at $66.69. The education provider recently touched down at a new 52-week low of $38.39 on August 13, 2010. The options trader prepared for the possibility that APOL’s shares could reverse direction by purchasing a put tree, buying 7,000 puts at the October $40 strike for premium of $2.69 each, selling the same number of puts at the October $35 strike at a premium of $1.20 apiece, and finally shedding another 7,000 puts at the lower October $30 strike for a premium of $0.48 a-pop. The net cost of the transaction is reduced to $1.01 per contract. Thus, the put player is poised to profit should Apollo’s shares plunge 8.25% lower to breach the effective breakeven point to the downside at $38.99 by October expiration. Maximum potential profits of $3.99 per contract are available to the trader should APOL shares tumble 17.65% from the current price of $42.50 to settle at a new 52-week low of $35.00. The uncovered short position at the October $30 strike indicates the investor is willing to have 700,000 shares of the underlying stock put to him at $30.00 each in the event Apollo’s shares collapse below $30.00 and the puts land in-the-money by expiration day. We note that the investor could be utilizing the put tree to protect the value of a large position in APOL shares rather than employing the strategy as an outright bearish bet that shares are set to decline in the next couple of months.
Continental Airlines, Inc. (CAL) – Shares in Continental Airlines are down 2.9% at $20.37 this morning, but one contrarian options strategist appears to be betting that the stock is unlikely to fall much further in the next couple of months. The investor initiated a bullish credit put spread, selling 5,000 puts at the October $20 strike for premium of $1.53 each, and buying the same number of puts at the lower October $18 strike at a premium of $0.89 apiece. The trader pockets a net credit of $0.64 per contract on the transaction and keeps the full amount as long as CAL’s shares exceed $20.00 through expiration day in October. Continental Airlines’ shares, at the current price of $20.37, are down 21.6% since July 27, 2010, when the stock was trading at approximately $25.99. The investor responsible for the credit spread does not expect shares will fall much lower, but is happy to have CAL shares put to him at an effective price of $19.36 each in the event that CAL shares continue to decline, and the puts land in-the-money at expiration. The trader is exposed to maximum potential losses of $1.36 per contract should the price of the underlying stock plunge 11.6% from the current price to trade beneath $18.00 by expiration day.
J. Crew Group, Inc. (JCG) – Near-term bullish traders scooped up in- and out-of-the-money calls on the retailer of high-quality clothing and accessories today to prepare for continued appreciation in the price of the underlying stock through September expiration. JCG’s shares increased as much as 2.5% in the first half of the trading session to secure an intraday high of $33.63. Investors hoping to see J. Crew extend gains picked up roughly 2,400 in-the-money calls at the September $32.5 strike for an average premium of $2.00 each. Call buyers at this strike stand ready to make money if the retailer’s shares rally another 2.6% over today’s high of $33.63 to exceed the average breakeven price of $34.50 by expiration. Optimism spread to the higher September $34 strike where investors paid an average premium of $1.29 per contract to take ownership of approximately 1,300 calls. Traders start to amass profits on their purchase of September $34 strike call options if J. Crew Group’s shares surge 4.9% to trade above the average breakeven point at $35.29 by expiration day next month.