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Why trader is selling calls in Sprint

Mike Yamamoto (mike.yamamoto@optionmonster.com)

A large trader apparently sees limited upside for Sprint.

optionMONSTER's tracking systems detected the sale of 18,500 November 6 calls for $1.15, clearly a new position because open interest in the strike was 3,443 contracts before the trade appeared. Exactly one minute later, 1,850,000 shares of S were bought in a single print for $6.96.

The combination of stock and options creates a covered call strategy, which is bullish up to the strike price but surrenders any profits above it. Investors often sell calls in this way to generate income while holding their long positions, especially when they believe that share gains will be limited in the foreseeable future. (See our Education section)

S slipped 0.57 percent on Friday to close at $6.92, just a penny of its session low. The telecom carrier reached a recent high of $7.26 on Aug. 9 but has been drifting lower since.

The covered call made up almost all the option volume in Sprint on Friday, which was 65 percent higher than its daily average. Overall calls outnumbered puts by more than 16 to 1, a further reflection of the session's bullish sentiment.

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