Long-term play bets on Leap bounce


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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