Sprint Drops Call With Clearwire While Trying New iPhone

| About: Sprint Corporation (S)
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Sprint (NYSE:S) investors have been reeling in pain lately as the stock price crashed through $3 a share once again today after gaping higher during the open. Shares traded as high as $3.39 a share with massive volume trading. With almost four times the average daily volume traded, Sprint stock changed hands in an amount of about 250 million shares. The last time Sprint stock was this active was on March 21, 2011 with about 303 million shares trading.

Sprint had been under pressure from the official disclosure of the company's soon to be Apple (NASDAQ:AAPL) iPhone offering. Many concerns stemming from the commitment of large quantities at a reported $600 per unit price did not originally build investor confidence. It did not take long for the market to put a pencil to the numbers and calculate that the difference in cost may be no larger than $50 compared to many of the Google (NASDAQ:GOOG) Android-powered phones offered by HTC and others. Google's stock price, while down recently, is up four days in a row. It's only a matter of time before Apple and Google are directly battling for market share, instead of the largely indirect skirmishes we are witnessing now.

Sprint's management allowed investors to enjoy the bounce higher for only a couple of hours before dropping the atomic bomb of finance. Sprint announced it would seek greater capital due to expected costs in building out the company's wireless offering. How will the build-out impact earnings next year? No one knows, as Sprint didn't provide forward guidance. Recently, it appeared sprint was about to become profitable, something investors have been waiting to occur any moment. Now it appears the rug has been yanked out from under their feet.

Sprint intends to ramp up capital spending from about $3 billion this year, up to $5 billion next year and 2013, according to Euteneuer, Sprint's CFO at an investor conference. One has to wonder if the attendees felt more like bag holders than investors?

Adding in the impact of Sprint's reported $20 billion commitment with Apple was simply too much and the stock quickly moved from trading higher to lower from yesterday's close.

But wait, that's not all ... Sprint dropped two bombs today. Clearwire Corp (CLWR) was taken to the woodshed when Sprint disclosed its future direction for wireless Internet will be moving away from Clearwire's offering of WiMax to LTE "Long-Term Evolution" delivery. Sprint currently uses the WiMax network for some of Sprint's high speed network capabilities.

Clearwire stock imploded on the news, sending the price lower by over 30%. Clearwire traded down to $1.32 a share, matching the 52-week low recently set in August. Clearwire has been losing money, and will clearly need a plan "B" quickly. The current path is pointing straight at the pink sheets. Clearwire does hold some very valuable spectrum space and the company may be worth more dead than alive, as wireless carriers circle around overhead. The book share is reported on Yahoo to be $3.84 a share. If this amount is cut in half, new investors may be able to receive a healthy return, but not without great peril. I will be watching Clearwire for an entry next week, likely Tuesday or Wednesday. The premiums are understandably sky high with the $1 strike price put options expiring in December trading $0.30-.35 with massive volume. The open interest is over 18K contracts and the volume today is over 2,300 contracts. The front month really demonstrates the spike in activity with the $1 strike puts trading 2,600 contracts against open interest of only 130 contracts.

Drops like Sprint had today in the stock price often have some carry-through, so like Clearwire, I'll be watching the price action Monday but likely will wait until Tuesday to catch this falling knife. The November Sprint $2.00 put options also have a very large implied volatility and are actively traded a little higher than $0.20 into today's close. A dip below $2 on Monday would be appealing, but absent a large discount, I will hold the powder dry and gain some exposure Tuesday or Wednesday.

I traded Apple stock short yesterday and while I made a small gain, I was surprised the stock held up as well as it did. I wrote in my blog I believed Apple would trade $370 by the end of the week. I believe Apple may find it difficult to gain any real upward motion before investors get a chance to see how Apple is able to perform under new management. I intend to fade any strong moves higher. The $375 and $380 December strike price call options appear to be in the sweet spot to gain a short exposure in moves higher.

I continue to have a long bias with Google, and believe shorting put options during dips offers an excellent risk / reward relationship with the current market environment. I also expect Google to figure out sooner, rather than later, they need to get back into China. I have believed shorting Google puts as recently as August was correct, but I did not catch the last move under $500 this week. Next week if the market is willing to let go of shares again so cheap I will be watching the back month $480 put options for an entry.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GOOG, S, CLWR over the next 72 hours.

Additional disclosure: I may short AAPL next week.