Jan. 8, 2010
By Jeff Kearns and Katie Hoffmann
[Bloomberg] -- Options traders are betting Nokia Oyj (NOK) will gain 14 percent by Feb. 19 as the world's biggest maker of handsets returns to profit and investors bet the company is about to introduce technology.
Speculation that Nokia will rise pushed the number of bullish options on the stock to almost double the level of bearish ones, the highest ratio in about a year, according to data compiled by Bloomberg.
The contracts may pay off should Nokia's earnings surprise investors this month after the company reported its first quarterly loss in October. Chief Executive Officer Olli-Pekka Kallasvuo is scheduled to give the Jan. 8 keynote speech at the Consumer Electronics Show in Las Vegas. The wagers come after Fitch Ratings cut Nokia's credit ranking on Dec. 21 and the shares trailed the Standard & Poor's 500 Index by 41 percentage points in 2009, the most ever, data compiled by Bloomberg show.
"Investors are betting that Nokia can't continue to get things wrong," said Michael Yoshikami, chief investment strategist at YCMNet Advisors in Walnut Creek, California. The firm manages about $1 billion and owns Nokia shares. "The iPhone has been a wake-up call for them and they are starting to show that they understand the market has changed."
Nokia, based in Espoo, Finland, has faced slumping consumer demand and mounting competition from Cupertino, California-based Apple Inc.'s (AAPL) iPhone. Google Inc. (GOOG), the Mountain View, California- based owner of the most popular Web-search engine, introduced its own smartphone this week, the Nexus One.
ADRs Slip
American depositary receipts of Nokia slipped 0.8 percent to $13.15 in New York trading yesterday, extending a 19 percent retreat over the past year. Its share of the smartphone market, the industry's fastest-growing sector, fell to 39.3 percent in the third quarter from 42.3 percent a year earlier, while Apple and Research In Motion Ltd. (RIMM), the Waterloo, Ontario-based maker of the BlackBerry, gained, according to research firm Gartner Inc. (IT) in Stamford, Connecticut.
Nokia, which said last month its share of the total handset market will be little changed this year, is releasing new touch-screen phones and improved applications to win customers back. Analysts expect the company to earn 16 euro cents [23 cents] a share in the period ended last month, reversing a loss of 15 euro cents the previous quarter.
Laurie Armstrong, a spokeswoman for Nokia, didn't immediately return a call seeking comment.
"The fourth quarter is shaping up to be a little bit healthier than they thought," said Jeff Kvaal, a New York-based analyst at Barclays Plc (BCS), in an interview.
Oppenheimer & Co. analyst Ittai Kidron in New York raised his estimate for last quarter's device volume to 121 million from 118 million in a report this week.
Call Spread
Most Nokia options trading in the last two weeks has involved investors buying February $14 calls on the ADRs while simultaneously selling February $15 calls, according to Chris Jacobson, chief options strategist at Susquehanna Financial Group LLP in Bala Cynwyd, Pennsylvania. The strategy, known as a "call spread," caps profit while cutting the cost of the trade because the buyer pockets the price of the call he sold.
"Buying that spread could offer a way to gain relatively inexpensive exposure in the event shares rally significantly in the weeks after the CES show and the company's earnings release," Jacobson said. "Given the consistency and the size of the trades I think it's worth noting."
Nokia's Helsinki-based shares trade for 12.8 times analysts' forecasts for profit in 2010, less than half its average valuation of 28.1 last decade, data compiled by Bloomberg show. The stock has fallen 68 percent from a six-year high of 28.60 euros in November 2007 after reporting it lost market share to Apple and RIM.
Open Interest
The open interest, or existing contracts, for Nokia's February $15 calls jumped 155-fold to 35,228 on Dec. 30, the largest one-day gain among all Nokia options over the last two weeks, according to data compiled by Bloomberg and Trade Alert LLC, a New York-based provider of analytics. It rose to 55,567 on Jan. 5, the most recent data available. Open interest for February $14 calls has surged 12-fold since Dec. 29.
The overall open interest for all Nokia calls has risen 66 percent in the last week to 296,261 contracts, while put open interest has climbed 12 percent to 160,433.
"Reports on fourth quarter handset sales are coming in better than expected," said Nirav Parikh, a senior vice president at Los Angeles-based TCW Inc., which manages $110 billion, including Nokia shares. "That's possibly driving the optimism in the options markets because it can translate into better earnings."
Source: The McGraw-Hill Cos. All Rights reserved.
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