VZ Analysis

Update 2/16/2016: The long leg of my VZ position became profitable while I had no countervailing short leg, and I have exited the position entirely, ending the series.

Shares rose by 9.8% over 70 days, or a +51% annual rate. The optons position produced a 119.6% yield on debit for a +623% annual rate.

Here is a chart of the individual positions that made up the series.

VZ	type
option	credit	debit	profit	yield	entry	exit	days
+c45jun	5.80	2.14	7.94	-371.0%	12/8/2015	2/16/2016	70
-c46jan	0.57	-0.27	0.30	111.1%	12/8/2015	1/4/2016	27
-----------	-----------	-----------	-----------	-----------	-----------	-----------	-----------
Status:	6.37	1.87	8.24	-440.6%			97
option description key: long/short, call/put, strike, series

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The broadband and telecommunications company Verizon Communications Inc. (VZ), headquartered in New  York City, closed above its 20-day price channel on Monday. The stock has low historical odds of profitable bull signals and low implied volatility relative to its one-year range and so is a candidate a covered call or an all-options alternative, such as a diagonal spread.

[VZ in Wikipedia]

VZ

For the short leg, I shall use the JAN series of options, which trades for the last time 38 days hence, on Jan. 16, and for the long leg, the JUL series, which completes trading on July 15, 220 days from now

Ranges

Implied volatility stands at 18%, which is about the same as the VIX, a measure of volatility of the S&P 500 index. VZ’s volatility stands in the 27th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	48.35	50.94	N/A
Lower	43.17	40.58	N/A
Gain/loss	5.7%	11.3%

Implied volatility 1 and 2 standard deviations; maximum earns move
The Trade

VZ has been in a downtrend since July 2014. It hit a low on Aug. 24, the day of the China Panic, and then reversed in a countertrend correction to the upside.

Zacks Investment Research gives VZ a neutral ranking, 3.

Diagonal spread, long the $46 calls expiring Jan. 18 and short the $45 calls expiring July 16 bought with a credit. Probability of expiring out-of-the-money

	Strike	OTM
JUL	45	55.5%
JAN	46	58.0%

For the long leg, the premium is a $2.23 debit, and for the short leg, a $0.66 credit, for a net debit on both legs of $1.57. The stock at the time of entry was priced at $45.85.

Decision for My Account

I've opened a position on VZ as described above.

-- Tim Bovee, Portland, Oregon, Dec. 8, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.


Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



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Based on a work at www.timbovee.com.