Verizon (NYSE: VZ - option chain) shares are dropping today along with almost the whole market on plain old fear. VZ is expected to announce its third-quarter earnings release Monday before market open. Analysts are looking for a profit of 66 cents per share on revenue of $24.5 billion. Though VZ has reported at or above analysts' estimates in three of the past four quarters, the company is under pressure to match competitor AT&T's (NYSE: T) 2 million net gain in subscribers for the quarter that T reported this week. Option prices are inflated currently due to the record market volatility, and VZ's should be even more expensive ahead of earnings next week. If you think this stock won't be rising too far in the kind of market we have been seeing, then it could be a good time to look at a bearish hedged play on VZ.This morning, VZ opened at $24.32. So far today the stock has hit a low of $24.26 and a high of $25.64. As of 12:15, VZ is trading at $25.28, down 96 cents (-3.7%). The chart for VZ looks bullish and S&P gives VZ a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $30 range.
A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.6% return in one month as long as VZ is below $30 at November expiration. Verizon would have to rise by more than 18% before we would start to lose money. If you think that VZ will report positive earnings and has nowhere to go as a stock but higher, then you might take a look at the December $22.50 bull-put credit spread. Learn more about these types of trades here.
VZ hasn't been above $30 since early October and shown resistance around $29 over the past two weeks.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in VZ, but he does have a bullish hedged position in T.
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Reader Comments (Page 1 of 1)
10-24-2008 @ 3:49PM
beanspants said...
even if VZ reports very good numbers (which i somehow think they will) I don't see them being a market mover, so this seems like a really good trade. thanks.