A Pre-Earnings Options Play on Sprint

| About: Sprint Corporation (S)

I've been bullish on Sprint (NYSE:S) for a while. Heading into earnings, I remain optimistic. According to Briefing.com, Sprint reports prior to the open on Thursday, July 28th. Wall Street expects Sprint to report a loss of $0.11 per share.

One of the main catalysts for my bullishness involves the increasing likelihood that Apple (NASDAQ:AAPL) will give the nod to Sprint for a version of its iPhone 5. Of course, Sprint still offers unlimited data plans to its customers, making it an attractive carrier, particularly for so-called "data hogs." One analyst even speculates that a Sprint iPhone will do better than Verizon's (NYSE:VZ) offering. We all remember the hype that surrounded the Verizon launch.

And Seeking Alpha contributor Erik Gholtoghian makes a sound bull case for Sprint on the basis of smartphones from the company that target low-end consumers.

While the firm did not ignore the potential downside, RBC Capital sounds bullish as well via a note on Briefing. If management can accentuate the positives from the first half of this note, the call should go off well. It's not as much about Sprint's near-term numbers as it is about their vision and earnings outlook going forward. If they hint at or make an iPhone-related announcement, look out.

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I own shares of Sprint outright, however, it makes sense to approach the company using options. If you want to make a somewhat risky direct play on earnings, you could just buy August calls straight away. I opened a position a few days ago in the S August $6 calls at a price of $0.15 per contract. Because the stock has dropped a bit since I got into the calls you can grab them now for a relative bargain. The ask, as of Wednesday's close, stands at $0.11.

Because I am one to take gambles, plus I made a relatively small play, I am comfortable going out-of-the-money. To play it safer, look to the S August $5 and $5.50 calls, available for $0.55 and $0.26, respectively, also as of Wednesday's close.

If you don't mind running the risk of having to buy shares of Sprint at $5 a pop, you could put on a combo and sell the S August $5 put for roughly $0.11. Not only does this reduce the amount of cash you have to put out for the calls, it brings your effective price to about $4.89 if S drops and the put you wrote gets exercised.

Again, only make this part of the play if you are okay owning S at that price. In my case, it's the type of stock I would like to hold over the long haul, adding to the position on dips and through put writing.

Disclosure: I own shares of S common stock and hold a long position in S August $6 call options.

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Tagged: , , Wireless Communications, Options
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