Verizon Stock Looking To Buck Sector Slump

Verizon options traders have been preferring puts more than usual lately

Managing Editor
Oct 13, 2017 at 12:09 PM
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AT&T Inc (NYSE:T) made headlines yesterday, warning that their third-quarter revenue and profit would be lower due to the influx of Hurricanes a month prior. This news cuts into a sector that has already been underperforming, according to Schaeffer's Senior Quantitative Analyst Rocky White. Only 36% of the stocks in our telecom sector are above their 80-day moving average -- tied for the lowest of any sector. Below, we will look at sector peer Verizon Communications (NYSE:VZ) ahead of its own earnings report next week and see how options traders are viewing the telecom giant. 

Verizon will report its third-quarter earnings before the open next Thursday. While VZ stock gained 7.7% the day following its last earnings report in July, it has closed lower five times in the session subsequent to reporting over the last eight quarters. Overall, the stock has averaged a single-session post-earnings move of 3.1%, which is exactly what the options market is pricing in this time around.

VZ stock is currently down 0.4% to trade at $48.14. The telecom stock has endured a sluggish run lately, shedding 9% in 2017. The equity's 20-month moving average has served as stiff resistance since its January bear gap.

Short sellers have been slowly climbing aboard. Short interest increased by 4% during the last reporting period to 38.65 million shares, its highest point since July 2016. Furthermore, this only represents a meager 1% of VZ's total available float, indicating there is plenty of room aboard the bearish bandwagon. Analysts are also skeptical. Exactly three-quarters of analysts covering VZ stock rate the shares a tepid "hold."

In the options pits, put buying has become more popular in October. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), VZ sports a 10-day put/call volume ratio of 0.64, which ranks in the 72nd annual percentile, hinting at a stronger-than-usual bearish bias.

The good news for options traders is that Verizon stock has consistently rewarded premium buyers, per its Schaeffer's Volatility Scorecard (SVS) of 86. Simply stated, the equity has tended to make bigger moves than what the options market has priced in.

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