Wednesday, January 20, 2016

VZ Analysis

Update 2/17/2016: I exited VZ for a loss on the third trading day before expiration. Shares rose by 13.8% over 28 days, or a +179% annual rate. The options positions produced a -74.0% loss on debit for a -965% annual rate.

The broadband and telecommunications company Verizon Communications Inc. (VZ), headquartered in New  York City, publishes earnings on Thursday before the opening bell.

[VZ in Wikipedia]


I shall use the FEB series of options, which trades for the last time 30 days hence, on Feb. 20.


Implied volatility stands at 24%, which is 0.8 times the VIX, a measure of volatility of the S&P 500 index. VZ’s volatility stands in the 88th percentile of its most recent range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

VZ has been in a down-tilted sideways move since April 2013.

Brokerages in aggregate come down at a 17% enthusiasm index for VZ, with 52% of 23 analysts giving a strong buy recommendation.

Three of the last four earnings announcements resulted in price increases the next trading session.

VZ has a beta of 0.31, meaning that it correlates weakly with the S&P 500.

In constructing a direction-neutral position, I'm skewing the profit zone to the downside to better accommodate a post-earnings decline.

Iron condor, short the $46 calls and long the $47 calls,
short the $41 puts and long the $40 puts,
sold for a credit and expiring Feb. 21.
Probability of expiring out-of-the-money

The premium is $0.27, which is 27% of the width of the position’s wings. The stock at the time of entry was priced at $44.19.

The risk/reward ratio is 2.8:1.

The zone of profit in the proposed trade covers a $2.50 move either way. The biggest immediate move after each of the past four earnings announcements was $2.41, and the average was $1.14. The central tendency, after removing the maximum and minimum, was $0.80

Decision for My Account

I have opened a position on VZ after dropping my ask of $0.32 5o $0.27 in order to get a fill. I have updated the analysis above to reflect the new price.

-- Tim Bovee, Portland, Oregon, Jan. 20, 2016


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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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.

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