Leap Wireless (NASDAQ: LEAP) looks to be the next hot pre-paid cellular company. OptionMONSTER’s Heat Seeker tracking system detected the purchase of 3,500 LEAP July 15 Calls for $1 and $1.05 and the sale of an equal number of LEAP July 13 Puts for $1.45. Volume was more than four times open interest in both strikes.
Options trading investors will note the trade resulted in a credit of about 45 cents and will earn theoretically infinite profits if the shares push higher, with the gains accelerating over $15. It will lose money below $12.55.
LEAP fell 4.99% to $13.01 in late morning trading. Yesterday it rallied more than 9% after a major shareholder said it was trying to shake up its board of directors. The investor, Pentwater Capital Management, said the company has mismanaged its cost structure and handset inventory. It also questioned LEAP’s strategic focus on broadband services.
Pre-paid wireless carriers appear to be in a secular growth trend as customers opt for the flexibility of forgoing a contract. Industry leader MetroPCS Communications (NYSE: PCS) has almost tripled in the last 13 months, and rival Sprint Nextel (NYSE: S) has started receiving wave of bullish activity in recent weeks. LEAP has badly lagged both.
Today’s option trade reflects a belief that the shares will climb in coming months. Short interest also represented about 12% of the float as of mid-February, which could accentuate the gains if the stock moves higher.