It's More Than Just Having an App for That

Fundamentally and technically, shares of Sprint look attractive. We love that the stock is sitting at two-year volatility lows and will buy calls on the name.
By Mark Sebastian ,

When I graduated from college, the first cellular phone that I owned was a Sprint phone made by what is now

Sprint Nextel

(S) - Get Report

. A lot has happened since then. The man in the black duster jacket came and went. Sprint bought Nextel, the CEO offered one price for all services and the company introduced 4G. Was the issue the phones, probably not? The issue has and continues to be complaints about reception and dropped calls. I only wish cell phone providers would get that most people care more about being able to get a good signal than they do about 'having an app for that.'

Sprint seems to have come to some sort of culminating point. There is speculation that it is dropping the Nextel service by 2013, probably a good thing as they will finally be focused on one product (namely 4G). There is also market chatter of a big European company possibly buying them, something I would really like to see. I think a buyout by a foreign firm that wants to break into the U.S. could be a great thing. A major investment from a competitor in Sprint would be ideal too (Done well, those deals can be great. Just look at Verizon (VZ) - Get Report and Vodaphone's (VOD) - Get Report partnership).

The stock itself has bottomed out, reaching a low in the $3.70s. Since that bottom, the company has rallied back above $4.00, up to about $4.24 at ~1:30 p.m. EST. Sprint shares also got a boost as Brett Feldman, an analyst at Deustche Bank (DB), increased long-term EBITDA and FCF estimates, raised his price target to $7.00 from $6.00 and reiterated the buy rating following the announcement of its network modernization project called Network Vision. If the company can execute on Network Vision or find a good partner, I think there could be tremendous upside to this stock.

Many times, traders will sell puts on a stock like this because they are looking to buy below a certain price. For instance, $4.00 put sellers are saying they don't mind owning the underlying below $4.00. However, when I look at long-term volatility in Sprint, I see that the stock is at two-year volatility lows. This is the cheapest we have seen Sprint options since the flash crash. The long-term volatility is actually trading lower than realized volatility. When implied volatility at its lows and below realized volatility, I typically prefer to buy options. With Sprint trading $4.25, I am going to buy May 4 calls for $0.66 cents. My goal is to sell these for over a $1.00, or even convert them into a call spread or ratio spread.

Trade: Buy to open S May 4 calls for $0.66.

At the time of publication, Mark Sebastian held no positions in the stocks or issues mentioned.

Mark Sebastian is COO and Director of Education for Option Pit Option Mentoring. Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He started the popular blog Option911, which is now the Option Pit blog. Sebastian has been published nationally on Yahoo! Finance, is a featured contributor for TheStreet's OptionsProfits, SFO, OptionsZone and is the managing editor for Expiring Monthly: The Option Traders Journal. Mark has a Bachelor's in Science from Villanova University.

OptionsProfits For actionable options trade ideas from a team of experts, visit TheStreet's OptionsProfits now.

Readers Also Like:

>>Google Pullback Opportunity

Readers Also Like:

>>XLE Looks Ready to Power Higher

Readers Also Like:

>>What's Next For Silver?

Loading ...