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Verizon Communications Inc. (VZ) Bears Question Long-Term Support

Verizon Communications Inc.'s $46 level has served as a foothold since February 2013

by 7/15/2014 11:51 AM
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U.S. markets have retreated from earlier intraday highs, after Federal Reserve Chair Janet Yellen indicated the central bank may raise interest rates sooner rather than later, should the employment backdrop keep improving. However, Dow component Verizon Communications Inc. (NYSE:VZ) is holding onto its lead, up 0.2% to trade at $50.62. In spite of this outperformance, put volume has soared to three times what's typically seen at this point in the day, with a number of speculators eyeing a retreat back below the $46 mark -- a level that has served as support for VZ since February 2013 -- over the next several months.

Specifically, the most active VZ option today is the October 46 put, where 11,310 contracts have changed hands. Almost all of these puts have traded at the ask price, implied volatility has edged higher, and only 3,001 contracts currently make up open interest here -- all indications of buy-to-open activity. The volume-weighted average price (VWAP) for the puts is $0.31, making breakeven at the close on Friday, Oct. 17 -- when the options expire -- $45.69 (strike less VWAP). Gains will accrue on a move down to zero, while losses are limited to 100% of the premium paid, should VZ settle north of the strike at expiration.

On the fundamental front, Verizon Communications Inc. (NYSE:VZ) is scheduled to report quarterly earnings ahead of next Tuesday's open. The telecommunications titan has matched or exceeded analysts' bottom-line estimates in six of the past eight quarters, resulting in an average single-session, post-earnings gain of 0.2%. For VZ's second quarter, Wall Street is calling for a per-share profit of 90 cents -- a 17-cent improvement over what the company banked one year ago.


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