The Troubled Affair of Sprint and T-Mobile

She loves me. She loves me not.

The on-again, off-again engagement of T-Mobile (TMUS) and Sprint (S) is apparently off again. If I'm a TMUS long, I'm not too upset about the potential for no merger. Of the two, I view TMUS as much stronger. I'm amazed that Sprint -- well, Softbank really -- is balking at giving up control. Sprint has a huge debt load and bottom-line numbers are struggling to break even. TMUS has its own share of debt, albeit smaller, but the company has strong free cash flow and sits in a position of strong profitability as it continues to snag market share from other cellphone carriers.

This isn't to say Sprint is useless. The company holds a significant portion of the high-frequency 5G market and will likely be the biggest beneficiary when 5G becomes the new standard. Meanwhile, T-Mobile has launched a narrowband network to capture the lead in the race for Internet of Things devices. A combination of these two specialties could create a formidable competitor to both Verizon (VZ) and AT&T (T) . Furthermore, TMUS could use its ties to Deutsche Telecom to refinance Sprint's debt to more attractive rates.

Together or apart, the selloff in TMUS yesterday presents an opportunity today. Unfortunately, there could be some short-term overhang and the stock may trade sideways for a few weeks. For that reason, I'm looking to be a put seller on TMUS. 

Selling the Nov. 24 options on most names holds appeal to me. These expire the day after Thanksgiving, and that's generally a sleepy week in terms of market volatility, plus it houses a day and a half of closed market. 

The trade:

Sell to open 1 Nov. 24 $59 put at $1.14 or better.

Net proceeds $114

Max reward $114

Max risk $5,786

Max rate of return: 2%

Days until expiration: 24

Potential annualized rate of return: 30%

At the time of publication, Collins had no positions in the stocks mentioned.