Options Players Make the Call for T-Mobile

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Editor’s note: We’re pleased to present the inaugural column from Andrew Keene, a respected and prolific market professional.

T-Mobile U.S. (TMUS) has been experiencing heavy bullish activity from options traders lately after its merger with MetroPCS (and NYSE listing for the combined entity) earlier this month. The combined company has already made a large impact in the options world.

Let’s take a look under the hood and see if we can find a compelling trade in this new issue.

T-Mobile is the fourth-largest wireless carrier in America, and shares of TMUS have increased by about 24% since being listed on May 2. The stock has enjoyed a huge rally in the past few weeks and is currently trading above both its 50- and 200-day moving averages.

The company’s recent sales figures have been extremely promising — in just the last month, T-Mobile, which was late to the iPhone party, has sold more than 500,000 Apple (AAPL) iPhones to its customers, as many as its much larger competitor Sprint (S) over the same time period.

T-Mobile has also been focusing more on its international market and recently unveiled two new international flat-rate data options to address data roaming concerns of their customers. The new plans are expected to increase T-Mobile’s visibility while allowing it to get a larger share of the international market.

Across all strikes, T-Mobile’s current ratio of call to put volume is 5.68 — and it’s even higher for June options (6.40). Right now, there is a lot of optimism in the market that shares of T-Mobile will continue to rise.

Hedge funds have been bullish as well in their dealings with T-Mobile over the past two quarters even though a few, such as John Paulson’s Paulson & Co. put up a major fight over the merger of T-Mobile and Metro PCS. Paulson & Co. currently own $316 million of T-Mobile shares, an increase of 34% from the previous quarter. Just behind Paulson & Co. is Cliff Asness’ Aqr Capital Management, whose holdings have ballooned by 369% to 4.2 million shares. Finally, Highland Capital Management has also been bullish with TMUS, increasing their holdings by 12% to just over 3.5 million shares, comprising over 3.59% of their total portfolio. These actions by the “smart money” are usually good indicators of the future performance of the stock — and with most investors behaving in a decidedly bullish manner, signs are good that T-Mobile will continue to perform well.

My Trade: Buy the TMUS Aug 22 calls for $0.90 or better. Risk is $90 per lot, while reward is theoretically unlimited. Breakeven for this trade is $22.90.

Greeks of this trade:

  • Delta: Long
  • Gamma: Long
  • Theta: Short
  • Vega: Long

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