What a whirlwind of news to come from the mobile gadget space during August. It has set the stage for a battle between the new kids on the block and some old but familiar ones to the game, including Nokia (Nasdaq: NOK).
Of all of them, it has the most to gain, and if the options market is any indicator of how it may benefit from the recent news, it's in pretty good shape. Before I give out any thoughts on this options activity, let's look at what is fueling some assumptions.
On Wednesday, Nokia is set to unveil a smartphone powered by Microsoft's (Nasdaq: MSFT) Windows 8. By teaming with the software giant for the new operating system, Nokia could have a viable chance of carving more market share. It had been a main contender in the handset market, but lost ground when Apple (Nasdaq: AAPL) came out with the iPhone. The slew of devices from Samsung powered by Google's (Nasdaq: GOOG) Android operating system eroded Nokia's market share.
Oddly, this new phone comes on the heels of the much touted and raved about Lumia 900 smartphone introduced by Nokia in the spring. The flagship phone was highly promoted by AT&T as was thought to be a solid alternative to Apple iOS and Android-powered devices. That didn't happen. The price has been cut by half since its release, now retailing for about $50 for customers who choose two-year contracts. Seems its presence on the shelves at AT&T has been encroached upon by Samsung's Galaxy S III, which was released a few months ago.
Further aggravating the Nokia 900's promise was Microsoft's announcement after the phone's release that it would not be upgradeable to Windows 8. I'm not a "gotta-have-the-latest-gadget person." However, even I couldn't see the point in signing a two-year contract for a phone that would be pretty much obsolete within months of its release!
While it may not have as much financial impact as the Windows 8 phone, another partnering recently announced involving Amazon won't hurt. Nokia will partner with Amazon to have its mapping software on the updated Kindle Fire, which is also expected to be announced this week.
This being said, while this new phone may be good for Nokia, the question that must be asked is "will it be enough." Options bulls seem to think it will.
At the closing bell on Friday, Nokia was trading at $2.82, but open interest and volume for contracts that expire this month with strike prices of $3 to $3.50 were exceptionally high.
More specifically, it appears that the options that expire Sept. 21 were the most popular. Open interest for the September $3 call was a whopping 93,561, with the volume traded at 2,296. The next popular option was the $3.50 call, which had an open interest of about 33,000. The volume was just shy of 1,350.
The volume traded in put options was much lower. In fact, the total was less than 1,000 with only about a handful of contracts in play. Clearly, this means there is more belief that Nokia's price will rise instead of fall in the coming weeks. And the bulls have many reasons to think this way.
I waiver in thinking that Nokia has the chance to climb to $3.50 by Sept. 21; $3 maybe. Its price may falter in the wake of the climb of stock prices by rivals like Amazon (Nasdaq: AMZN) and Apple, which are also set to unveil new devices in this month. In the meantime, this could be a good time to make some money in the short-term.
One of the options strategies that I think could be a good play for Nokia is doing a covered call. This strategy offers a limited hedge against a decline in stock price, and works to your advantage if you already own the stock, or you buy it.
Covered calls involve writing option contracts that equal the number of shares you own. You then sell a call option against that stock. The combination means you are long the stock and short a call option. This is also known as a "buy-write" transaction.
I came across this options strategy on the Born to Sell website that's worth considering if you already own shares in Nokia. It takes into account ownership of 500 shares in the stock. If you own this much, for example, you could earn $80 of option premium income between now and Sept. 22 by selling call options.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.