Nokia Bears Bet Big (Ed: Very bullish when I read article like this)
schaeffersresearch.com
Traders use a synthetic short strategy to bet against NOK
by Beth Gaston 8/23/2012 10:57 AM
Option players exhibited a preference for Nokia Corporation (ADR) (NYSE:NOK - 2.96) puts on Wednesday, with the contracts trading at nearly three times the average daily put volume. By the time the dust settled, roughly 52,000 put contracts had crossed the tape. Delving into the data, it appears that large-scale speculator scoffed at NOK's recent bout of positive price action by trading a synthetic short position.
The majority of yesterday's put volume was contained to two strikes: the January 2013 4-strike call and 4-strike put. Symmetrical blocks of 15,000 contracts crossed the tape midday and it appears as though the puts traded for the ask price of $1.41 while the calls traded near the bid price at $0.23 per contract. The trader may have bought the puts and offset their cost by selling calls (resulting in a net debit of $1.18); this is also known as a synthetic short.
The strategy will profit on a move below $2.82 (the strike price less the net premium paid) and will continue to rack up gains as NOK falls toward zero. North of this level, however, losses are theoretically unlimited due to the short call option. At its current levels, NOK needs to drop 4.7% by January expiration to put this trade in the money.
The growing trend in the options arena has been of a more bearish variety, even while NOK has tacked on more than 80% since its July 18 low of $1.63. Over the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.55 puts for every call, compared to the equity's 50-day put/call volume ratio of 1.27. Plus, the stock's 10-day ratio ranks higher than 92% of other such annual readings, indicating bearish bets have been scooped up over bullish at accelerated levels in recent weeks.
Technically speaking, NOK has been sending some mixed signals. Overall, the stock has struggled for some time. Since April 2010, NOK has beaten a steady path down the charts under the weight of its 10-month moving average. In 2012 alone, the shares have lost almost 40% of their value.
Following its aforementioned annual low in mid-July, though, NOK has outperformed the broader S&P 500 Index (SPX) by more than 37 percentage points during the past 20 trading sessions. One interesting note -- the stock has displayed this upward momentum all while short sellers increased their bearish exposure by 29.2% over the last two reporting periods, suggesting the security could have the might to move higher.
At last check, NOK had tacked on roughly 2.4% in early trading to hover just shy of $3. NOK shares have not closed north of the $3 level since mid-May.
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