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Verizon Communications Inc. (VZ) Bears Pick Up Short-Term Puts

VZ skeptics are targeting March-dated put options

by 2/7/2013 2:20 PM
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Option bears have taken a relatively rare shine to Verizon Communications Inc. (NYSE:VZ - 44.40), with traders buying puts to bet on an extended decline for the shares. So far today, the telecom concern has seen roughly 9,000 puts cross the tape -- more than double the number of VZ calls exchanged.

Most active by a mile has been the March 42 put, which has seen about 4,600 contracts change hands on open interest of fewer than 3,800 contracts, pointing to newly opened positions. Plus, 100% of the puts have traded at the ask price, underscoring our suspicions of freshly purchased positions.

By buying the puts to open, the traders expect VZ to breach the $42 level within the next several weeks. More specifically, the puts traded at a volume-weighted average price (VWAP) of $0.24, meaning the buyers will reap a reward if VZ sinks beneath the $41.76 level (strike minus VWAP) by the closing bell on Friday, March 15, when the options expire. However, even if the puts remain out of the money, the most the buyers can lose is the premium paid at initiation.

As alluded to earlier, today's appetite for short-term puts runs counter to the norm. Despite underperforming the broader S&P 500 Index (SPX) by nearly 5 percentage points during the past two months, VZ's short-term options crowd still prefers calls over puts. In fact, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.93 stands just 8 percentage points from a 52-week nadir, suggesting near-term options players have rarely been more call-skewed during the past year.

Elsewhere on Wall Street, 13 out of 28 analysts maintain "strong buy" endorsements for VZ, with not a single "sell" or worse rating in sight. Likewise, short interest accounts for a scant 1.7% of VZ's total available float, pointing to an anemic amount of skepticism among short sellers. An unwinding of sentiment could translate into a contrarian headwind for VZ, should the shares continue to lag the broader equities market.

At last check, the shares of VZ have shed 0.7% in sympathy with sector peer Sprint Nextel Corporation (NYSE:S), which released lackluster fourth-quarter earnings this morning.


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