Options Bear Bets Big Ahead of Verizon Communications Inc. (VZ) Earnings

An options trader is expecting Verizon Communications Inc. (NYSE:VZ) to drop to $35 in the next several months

by Josh selway

Published on Apr 20, 2016 at 2:24 PM
Updated on Jun 24, 2020 at 10:16 AM

While much has been said about Verizon Communications Inc.'s (NYSE:VZ) interest in buying Yahoo! Inc. (NASDAQ:YHOO), the telecom company's first-quarter earnings report -- scheduled for release tomorrow before the open -- has received little fanfare. Below, we'll analyze how options traders have been approaching VZ ahead of earnings. 

Starting in VZ's options pits, recent activity reveals a strong preference for long calls. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows almost two calls have been bought to open for every put during the past two weeks. 

However, this recent bout of call buying doesn't tell the whole story. VZ's Schaeffer's put/call open interest ratio stands at 1.07, which means put open interest is greater than call open interest among options that'll expire within three months. Plus, this SOIR is just 4 percentage points from a 12-month high, meaning the current put-skew is highly unusual. 

Today's options trading has been defined by what seem to be two huge long put spreads, which may be connected. Specifically, it appears one trader sold to open a 17,500-contract block of January 2017 35-strike puts to help finance the purchase of 17,500 January 2017 43-strike puts. Right after this, another long put spread was initiated at the same strikes, involving matching blocks of 7,500 contracts. Assuming this is one trader, he is targeting a move down to $35 from VZ before the contracts expire in January 2017. 

With VZ currently at $51.89, this trader is hoping for a 32.5% decline from the blue chip within the next nine months. For reference, the stock has traded below $43 in just three sessions over the past two years, and hasn't hit $35 since September 2011. In fact, VZ is up 12% in 2016 -- though an early April bear gap has the stock struggling below its 50-day moving average.

Looking back, Verizon Communications Inc. (NYSE:VZ) has moved higher in the session following its past two earnings reports. This time around, the options market is pricing in a 3.6% swing, in either direction. Elsewhere, on the M&A front, YHOO announced last night that VZ will be allowed to advance to the second stage of bidding.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


A Schaeffer's 39th Anniversary Exclusive!

8 Top Stock Picks for 2020

Access your FREE insider report before it's too late!


  
 
 

Partnercenter