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Will Sprint Stock Jump Following Merger Approval?

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Oct. 28 2019, Published 12:55 p.m. ET

The proposed merger between Sprint (S) and T-Mobile (TMUS) has been slowly stretching out regulatory approvals since the companies agreed to merge in April 2018. However, there’s a high probability that the end is near. To advance the deal into the final stage, the company needs to win a multi-state lawsuit. Notably, the lawsuit argues that the combined company would raise prices, which would harm consumers. The trial is scheduled for December 9. If the company is successful, final approvals are expected by mid-March. 

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Recently, Colorado reached an agreement with T-Mobile and Dish Network (DISH). Colorado dropped out of the multi-state lawsuit against the merger. Under the terms of the deal, “Dish will locate its new wireless headquarters with at least 2,000 full-time employees in Colorado and T-Mobile (TMUS) will significantly build out a statewide 5G network in rural areas.”

An analysis of the options market suggests that some traders think that the proposed deal will succeed. Due to the options expiration date on December 20, there has been a massive increase in activity over the past week for T-Mobile and Sprint stock. According to data from Barchart, the T-Mobile December $85 calls saw an increase in their open interest levels. Meanwhile, the Sprint November $7.00 calls and January $9.00 calls have also seen a significant increase.

Bullish bets on T-Mobile stock

The T-Mobile December $85 calls have seen their open interest rise since October 18 to over 800 open contracts—up from just 319 contracts previously. Also, data from Barchart shows that most of the contracts have traded on the ask side, which suggests that the calls were bought. The bet suggests that T-Mobile’s shares will rise. A buyer of the given calls would need the stock to surge to about $86.16 to earn a profit—the first indication that the deal with Sprint moves ahead.

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T-Mobile stock’s technical outlook

Let’s take a look at the T-Mobile chart to see a clearer picture. The technical chart is very bullish for the stock. Notably, the chart forms a technical pattern known as an “upward channel.” The share price recently tested the lower channel line, which means that the stock could rise more. T-Mobile stock trades ~4% and ~9% above the 50-day simple moving average and 200-day simple moving average, respectively. The reading confirms the bullish momentum and strength in the stock. However, if the stock falls below $81, it will likely continue to fall to the next support level at $78. In addition, the RSI index value of 61.17 shows that the stock is somewhat overbought. However, the RSI value doesn’t indicate a forthcoming trend reversal. In many cases, an index could remain “overbought” or “oversold” for a while.  

Positive signs for Sprint stock

There’s another positive indication for the deal. For Sprint stock, the open interest levels at the $7 strike price calls for the expiration on November 15 have increased sharply. Since October 18, the number of open contracts has risen to about 65,632 from 12,841. 

Also, the data shows that most of these transactions were traded on the ask side. The data suggests that the calls were bought—an indication that traders are betting that Sprint’s price will rise above $7.00 by the expiration day.

The $9 strike price puts have seen their open interest levels rise to 51,079 open contracts from around 23,099 open contracts on October 23. The data shows that calls also traded on the ask side, which indicates that traders are betting that Sprint stays above $9. For a buyer of the $9.00 calls, the stock needs to rise to around $9 by the expiration date to breakeven.

Are you curious about other stocks that options traders are actively betting on right now? Check out Micron Stock Could Keep Rising despite DistractionsNvidia Stock Could Be Poised for a BreakoutSelling AMD Stock? The Rally Could Go On, and Why Microsoft Stock Could Rise after Earnings.

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