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Sprint Cynics Emerge in Options Market

Also, Razorfish may see selling pressure after Friday's July 70 frenzy.
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Call option selling appeared to be the theme of



Monday amid continued reports that

Deutsche Telekom

(DT) - Get Dynatrace, Inc. Report

is interested in buying the company.


Financial Times

on Monday reported that Deutsche Telekom and Sprint have held preliminary talks about merging.

The Wall Street Journal

, which also reported that Deutsche is seriously considering making an offer to buy Sprint, reported that U.S. Senate leaders have indicated opposition to a Deutsche Telekom takeover of Sprint.

The call option selling is actually an indicator of cynicism among those playing the deal. Selling calls limits the upside for the seller, and is generally considered a neutral position in a stock.

Sprint had long planned to merge with



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. However, that proposed get-together with WorldCom is viewed as dead for the most part, considering the huge opposition to the deal from U.S. and European regulators. For more, check out's

coverage of the situation.


Chicago Board Options Exchange

floor source said there hasn't been much action in Sprint options Monday. The trader pointed out that the heaviest action was by call option sellers in the July 55s. For the July 55 calls on the CBOE, 350 contracts have traded. The calls were up 9/16 ($56.25) to 2 ($200). Implied volatility on Sprint wasn't moving much either, the trader said. (Implied volatility is the annualized measure of how much the market thinks a stock or index can potentially move and is a critical factor in an option's price.)

Also seeing some volume were the July 60 calls on the CBOE, where 226 contracts have traded. The July 60 calls were down 1/4 ($25) to 3/4 ($75).

The majority of the action in Sprint options overall -- and there hasn't been a lot since the WorldCom deal began to crumble -- was by people selling call options, the trader said. Traders who sell call options are hoping that the underlying security doesn't move higher to expire

in-the-money so they can keep the premium they collected for selling the call options.

Shares of Sprint surged at the open Monday, but have since come off its best level of the session. Sprint was up 2 1/4 to 53 1/4 after trading as high as 54 3/16 intraday. Meanwhile, Deutsche Telekom was off 2 7/16 to 54 5/16.

Overall, volume in the options market has been light and is expected to be light for the remainder of the shortened session. The stock and options markets close early Monday at 1 p.m. EDT, and will be closed Tuesday in observance of the Fourth of July.

Some selling pressure could be forthcoming on shares of



if recent options action is any indication. On Friday, a huge block -- 9,100 contracts -- of deep in-the-money July 70 puts traded, according to

McMillan Analysis

. McMillan noted that Razorfish stock withstood the selling after a similar occurrence a week ago. McMillan, in a research note Monday, said "expect the 910,000 shares of stock to be sold over the next couple of days." Razorfish was unchanged at 16 1/16.

So far Monday, options activity in Razorfish was light, with only 23 contracts trading. On Friday, a total of 9,624 contracts traded, well above the average volume of 1,289 contracts, according to McMillan.