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Verizon Communications Inc. Traders Eye End-of-the-Week Losses

VZ's weekly 4/5 49-strike put was bought-to-open on Wednesday

by 4/4/2013 10:11 AM
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Verizon Communications Inc. (NYSE:VZ) followed the Dow into the red on Wednesday, and the negative price action wasn't lost on option traders. Around 19,000 put contracts changed hands on the day, representing an 85% mark-up to the average daily volume for put options. By comparison, roughly 16,000 calls crossed the tape. Some speculators forecast additional downside through week's end, and scooped up VZ's weekly 4/5 49-strike put. Of the 6,855 contracts traded here, 64% went off at the ask price. With implied volatility rising 1.3 percentage points and open interest adding 3,312 positions overnight, it's safe to assume that new bearish positions were initiated.

The at-the-money puts were purchased for a volume-weighted average price (VWAP) of $0.22. In other words, traders will begin to profit with each step south of $48.78 (strike less the VWAP) Verizon Communications takes through the close on Friday, when the weekly options expire. This breakeven mark is just a stone's throw away from the stock's current price.

Yesterday's preference for puts diverges from the withstanding trend seen in the options pits in recent months. During the course of the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 77,393 calls, compared to 58,367 puts. The resultant call/put volume ratio of 1.33 ranks higher than 83% of other such readings taken in the past year, pointing to a healthier-than-usual appetite for bullish bets over bearish.

On the charts, Verizon Communications Inc has been moving steadily higher in recent months, with the shares up around 18% from their most recent intraday low of $41.50, which was tagged on Jan. 16. In fact, the stock hit a 12-year high of $49.86 on Tuesday, amid rumors of a Vodafone Group Plc (ADR) (NASDAQ:VOD) merger/buyout (the speculation has since been refuted). As such, Verizon's Relative Strength Index (RSI) of 70 is sitting in overbought territory, suggesting a near-term consolidation may have been in the cards.

In light of the overriding sentiment in the options arena, as well as Verizon Communications' recent technical triumphs, Wednesday's penchant for puts could simply represent shareholders picking up some options-related insurance against any additional downside.

In today's session, however, VZ has tacked on 0.4%, and was last seen lingering near $49.17.


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