Leap Wireless tanked yesterday, but one investor likes it over the long term.
optionMONSTER's Heat Seeker monitoring program detected the purchase of about 2,500 January 2014 5 calls for $1.64 and the sale of an equal number of January 2014 10 calls for $0.54. There was barely any open interest at either strike before the trade occurred, indicating that this is a new position.
The transaction resulted in a cost of $1.10 and will earn a maximum profit of 355 percent if the cellular-communications stock closes at or above $10 on expiration. (See our Education section for more on the strategy, which is known as a bullish call spread because it leverages a move between twice prices.)
LEAP plunged 19 percent to an all-time closing low of $4.49 yesterday. The drop came after high costs and subscriber losses caused profit and revenue to miss analyst forecasts. It contrasted with strong reports recently from prepaid-service rivals, including MetroPCS Communications and Sprint Nextel.
The bullish trade, which allows 17 months for a rally to occur, pushed total option volume in LEAP to 9 times greater than average. Calls outnumbered puts by more than 10 to 1.
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