Option Trader Bets $2.5M On T-Mobile Ahead Of Earnings

T-Mobile Us Inc TMUS shares are down 15.7% over the past year, but at least one larger option trader is betting on more upside ahead in the next several weeks.

The T-Mobile Trades

On Tuesday morning, Benzinga Pro subscribers received an option alert related to an unusually large T-Mobile trade.

At 11:26 a.m., a trader bought 18,000 T-Mobile call options with an $85 strike price expiring on March 20 at the ask price of $1.40. The trade represented a more than $2.5-million bullish bet.

Why It’s Important For T-Mobile Investors 

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge.

In this case, given the relatively large size of the call purchase on Tuesday, it could certainly be an institutional hedge.

T-Mobile Earnings Beat Coming?

The most obvious explanation for the large call purchase on Tuesday is that a deep-pocketed trader simply believes T-Mobile is going to report some big earnings numbers on Thursday afternoon.

The trader may also be anticipating potential update’s on T-Mobile’s pending merger with Sprint Corp S. In January, the U.S. Justice Department and the FCC both reportedly filed documents supporting the proposed merger.

T-Mobile reported in January it added 7 million new customers in 2019. Following the news, Nomura Instinet upgraded T-Mobile to a Buy rating and raised its price target to $96.

Bullish sentiment among StockTwits messages mentioning T-Mobile has ranged between 87.5% and 100% since late November.

Benzinga’s Take

T-Mobile may experience significant synergies and scale advantages once the Sprint merger is completed, but the fact that the calls purchased on Tuesday expire in less than seven weeks suggest it’s most likely all about earnings rather than a long-term bull thesis.

The break-even price of the calls purchased on Tuesday is $86.40, requiring a 7.2% gain for T-Mobile shares over the next month and a half to turn a profit.

According to Optionslam.com, T-Mobile’s seven-day implied movement based on the weekly options market is 3.6%.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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