Sprint Corp (NYSE:S) investors have been waiting in a lengthy queue of sorts the past few months. Our advice: don’t get agitated and disconnect by owning Sprint stock, get dialed in with a well-positioned and cost-effective bull call spread. Let me explain.
By some measures, 2017 has been a poor one for S stock investors. Shares are flat on the year compared to gains of around 5.5% for the S&P 500. However, that’s certainly better than losses for the period for competitors Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T).
What’s more, Sprint shares enjoyed an amazing comeback in 2016. The wireless outfit’s fortunes improved backed by an aggressive turnaround in progress. One impressive result has been Sprint’s ability to continue growing in a low-growth defensive industry group.
In fact, S stock’s most recent report sported the company’s ninth-straight quarter of improving revenues. The growth continues to put Sprint into a much healthier position as each new subscriber helps ease the burden of high fixed costs associated with the telecom business.
At the same time, on the price chart, shareholders saw S stock gain more than 130% on the year and roughly 300% off January 2016’s low. Given that, the current ennui Sprint investors have been dealing with in 2017 needs to be put into context, and in our view, isn’t all that bad of a wait time.
All told and given that Sprint still maintains its share of heavy gloominess among Wall Street analysts and bearish investors, the upside potential looks like an interesting one in S stock.
S Stock Weekly Chart
Looking at the weekly view of S stock, no doubt shares have come a long way off their low near $2 a share back in January 2016. More importantly for investors contemplating a position in Sprint after the strong run, the stock is in position to continue its uptrend.
Over the past four months since breaking quickly above the 62% retracement level, Sprint stock has, more or less, consolidated its prior gains in a loose lateral movement above resistance. It has been a “queue” of sorts and ultimately looks bullish.
Also supportive, some chartists may recognize a smaller, weekly double-bottom base developing in S shares during this period.
By either definition — and given an overbought situation that has worked its way into an oversold condition while holding key Fibonacci support — the situation appears bullish.
If a trader were to enter shares of Sprint today, technically it would be akin to “buying the pullback.” The underlying assumption here is support will hold and lead to an eventual breakout of the base — then possibly a challenge of the December 2013 high of $11.47.
Sprint Stock Bull Call Spread
Given the expectation for upside in Sprint stock and wanting the current pattern support to hold, an out-of-the-money bull call spread makes sense. In this situation, we’re not keen on buying into any additional weakness, but focused on profiting from a sustainable move higher. As such, the long call vertical fits this situation well.
This type of spread also has the advantage of reducing the impact of Greek risks associated with an outright long call in S stock, as the vertical sells a higher strike call to finance the purchase.
Reviewing Sprint stock options board, the June $9/$10 bull call spread is priced for 25 cents or better. The vertical offers the possibility of 75 cents in profits, or a return of 300%, if S can rally 18% into expiration and through the sold $10 call strike.
The premium compares nicely to purchasing the lower but still out-of-the-money $9 call for 48 cents. And with a holding period of nearly three months and an earnings catalyst in early May, this vertical is a nice way to be dialed in for continued upside in Sprint stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.