Volatility Signals in the Wireless Space

Quite an eventful day it's been in the wireless space. Following in-line earnings from American Tower (AMT - commentary - Cramer's Take), which included a 90% rise in first-quarter profits due to bullish demand for its broadcast and wireless communications sites in the U.S. and Latin America, we observed a knee-jerk boost in option trading volume in American Tower's competitor Crown Castle International (CCI - commentary - Cramer's Take).

Crown Castle, which is said to operate some 24,000 towers, leasing space in 68 of the top 100 markets in the U.S. to wireless service providers AT&T (T - commentary - Cramer's Take), Sprint (S - commentary - Cramer's Take) and Verizon (VZ - commentary - Cramer's Take), is based in Pennsylvania but is heavily exposed to the Australian market, where it reportedly provides coverage to 92% of the mobile-using public.

The five-fold increase in its option trading volume today occurred at the June 40 straddle, where it looks as though a trader may have sold a 5,000-lot position at this strike for a $3.20 premium in the expectation that Crown Castle shares will remain at current levels through midsummer. This would seem to put the company in fairly good stead, at least in the regard of this trader.

Since setting its all-time high of $43 back on Dec. 3, the company has battled back from the $33 doldrums on three occasions -- once in January, once in February and once in March. Open interest shows 1.7 calls open for every put, a proportion that has remained stable since early February.

Ericsson Puts Get Hotter

Another short-volatility play in the wireless space, albeit a more baldly contrarian one, came in the form of Swedish mobile giant Ericsson, whose shares took a 5% pounding on a Lehman Brothers report that Ericsson's first-quarter improvement in profit margins was due to revenue on its software and intellectual property rights, not improved cost controls or better sales.

A 12% pickup in implied volatility -- making Ericsson one of the top volatility gainers on our platform today -- made put-side premiums even richer. And it appears that traders fixed their attention on premium-selling in the June contract, selling calls at the 25 strike for 75 cents apiece and puts at the 22.50 strike for 85 cents per contract. If traded together, this position would imply range-bound share price action between the two strike prices heading into midsummer, preserving Ericsson's hard-won rebound back into the low $20s that it achieved in April.

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At the time of publication, Darst had no positions in the stocks mentioned.

Rebecca Engmann Darst is an equity options analyst for Interactive Brokers in Greenwich, Conn., and is the author of its daily "Options and Futures Intelligence Report." Each Thursday at 6:30 a.m. EST, she delivers the early-morning lowdown on option volume and sector trends on CNBC's "Squawk Box." She also appears on BNN Canada and has been a guest on Fox News' "Your World With Neil Cavuto."

Prior to her work in the equity options market, she spent seven years in Scandinavia as a Copenhagen-based chief reporter for a European Commission news service, correspondent for Spanish daily El Mundo and Radio Netherlands, followed by stints at Nordea Bank and Saxo Bank.