Tuesday, August 9, 2011

Sprint Nextel (S) - Stock Falls, Vol Rises, But Upside is the Risk

S is trading $3.25, up 3.7% with IV30™ up 0.4%. The LIVEVOL® Pro Summary is below.


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Sprint is a communications company offering a range of wireless and wireline communications products and services for individual consumers, businesses, government subscribers and resellers.

The company caught my attention because of it's recent stock and vol moves -- similar to BAC in a few ways, but also different with respect to the option markets reflection of risk. You can read the BAC article I posted on 8-8-2011 here:
Bank of America (BAC) - The Odds of the Largest Bankruptcy... Ever...

Let's start with the S Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see the downward slide started with the earnings release on 7-28-2011 and has continued since then. The stock closed on 7-27-2011 at $5.16. As of this writing the stock is trading down 37% from that level. On the vol side the IV30™ has jumped from 44.30 on 7-27-2011 to now 77.98, or a 76% pop.

Let's turn to the Skew Tab.

The skew shape across all three months is similar in that the upside is bid. The option markets reflect upside risk in the stock rather than downside. This is essentially the opposite of BAC, where the skew had a "normal" shape in that the downside was bid relative to the upside.

Finally, let's turn to the Options Tab for completeness.

Another striking difference between S and BAC is that the "bankruptcy puts" are no bid for S. In fact, all the way to Nov, the lowest strike puts have no bid. The option markets reflect essentially no risk that S equity "goes away" in the next few months. Interesting...

This is trade analysis, not a recommendation.

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