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Verizon Communications Sees a Spike in Near-Term Trading

Short-term speculation balloons on VZ

by 12/24/2012 9:01 AM
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Verizon Communications Inc. (NYSE:VZ - 43.57) was hit with a barrage of options activity from both sides of the trading aisle on Friday. Roughly 26,000 calls crossed the tape during the course of the session -- more than twice the norm -- while approximately 30,000 puts changed hands, which was triple the equity's average daily put volume.

Garnering notable attention was the 12/28 43-strike put, which saw close to 4,800 contracts trade at a volume-weighted average price (VWAP) of $0.17. Almost all of them crossed at the ask price, suggesting they were bought. Open interest at this strike soared by around 4,400 contracts over the weekend, signaling the addition of fresh bearish bets. In order for speculators to secure a profit on their bought-to-open puts, the stock must fall below $42.83 (strike price less the VWAP) by Friday's close, which is when these weekly options expire.

Nipping at its heels was the February 55 call, where north of 4,400 contracts were exchanged -- the majority of them at the bid price, pointing to seller-driven activity. The VWAP for these out-of-the-money calls was $0.02. This strike also saw a major surge in open interest over the weekend, pointing to the initiation of new positions. Should the equity remain south of the $55 mark through Feb. 15, the contracts will expire worthless, thus enabling the call sellers to pocket the modest initial premium received. This activity could also be reflective of a covered call strategy.

From a wider sentiment scope, VZ calls appear to have the upper hand over puts. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio stands at 3.75, confirming calls bought to open have nearly quadrupled puts during the past two weeks. This ratio ranks higher than all other readings taken within the past year, indicating traders have been snapping up calls over puts at an annual-high clip.

VZ has been a bit sluggish in recent weeks, with the stock down about 1.2% so far this month. What's more, the security finished a sixth consecutive session below its 10-day moving average on Friday, which had previously acted as firm support since mid-November.


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