After Earnings Release, Sprint's Stock Is Poised for Retracement
Sprint (S) - Get Report reported a narrower-than-expected fiscal first-quarter loss of $302 million before the market opened Monday, though it was wider than the loss reported a year earlier.
Meanwhile, revenue came in at $8.01 million, lower than the consensus estimate of $8.17 million.
Regardless, the stock rose on the narrower loss and an indication that Sprint has reversed course on losing subscribers.
Resistance has been rising since April. However, the stock's jump represents the greatest breadth of trading in the past six months, taking the price well above the resistance level.
At the same time, classic reversal signals confirmed a likely retracement of this pattern.
First, the volume spike was more than twice the typical volume for any one day, the greatest volume in six months. And the momentum measured by the Relative Strength Index moved strongly into overbought territory to the highest level in the same period, closing on July 25 at an index 8.70 points above the test level of 70.
With all the bearish signals in place, take a look at the options listings for Aug. 24, which expire in 24 days. The Aug. 6 put closed on Monday with an ask of 0.44.
Adding trading fees, this can be bought for $53. The break-even price for this contract is $5.47 a share (strike of 6, minus cost of the put).
The stock closed on Monday at $5.90, just 0.43 above break-even. So any retracement of a half point or more before expiration will make this put a profitable trade.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
Besides blogging atTheStreet.com,Michael Thomsett alsoblogs at theSeeking Alphaand several other sites.He has been trading options for 35 years. He also teaches on the Candlestick Forum website. To check membership, go to Candlestick Forum membership. His new book can be viewed at tinyurl.com/z44kzlu.