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Option Brief: Last Friday, Verizon Communications Inc. (NYSE:VZ) shot through the $49 mark -- an area that's served as a ceiling throughout most of 2014 -- after Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A) revealed an increased stake in the telecom concern. Although this level is proving supportive in this week's trading, a number of put players today are betting on the equity to retreat back below this mark in the near term.
Already today, VZ has seen 6,525 puts change hands -- nearly double what is typically seen thus far, and about three times the number of calls on the tape. The most active option is Verizon's weekly 5/30 49-strike put, where 3,771 contracts have been exchanged. Almost all of these puts have changed hands on the ask side, implied volatility is on the rise, and only 420 contracts make up open interest here, collectively inferring new bearish positions are being purchased.
On the reward side of this long put play, traders will begin to see a profit, should VZ land anywhere south of breakeven at $48.65 (strike minus the volume-weighted average price of $0.35) at expiration. Meanwhile, the risk on the bet is limited to the initial premium paid, should the security maintain its newfound perch atop $49 through the option's lifetime. There's a 45% probability as to whether the put will be in the money at the close on Friday, May 30 -- when the options expire -- as its delta currently rests at negative 0.45.
Technically speaking, VZ has been in a steady uptrend since hitting its most recent low of $45.85 on April 25, with the shares up 7% to trade near $49.06. On the fundamental front, Verizon Communications Inc. (NYSE:VZ) CEO Lowell McAdam said the company is not engaged in potential M&A talks with DISH Network Corp (NASDAQ:DISH). The rumors began circulating after AT&T Inc. (NYSE:T) on Monday announced its intention to acquire DIRECTV (NASDAQ:DTV).