Weekend Trader Alert

December 4, 2022

Open Positions Update

  • The Etsy (ETSY) January 20, 2023, 110-strike call was closed after hitting its target profit of +100%. If you have not already done so, please close out of your ETSY position at the earliest opportunity.

The following is this week's recommendation:

Verizon Communications (VZ)

Place a limit order to buy the Verizon Communications (VZ) April 21, 2023 40-strike put at a limit price within range of the current market asked price when you place your order. At the close on Friday, December 2, this option was offered at $3.50. VZ closed at $38.18 on Friday, December 2.

Do not attempt to enter this position after Monday's close.

Please use the following guidelines to manage the position:
  • Exit the position if the option is at a 100% gain from your entry price.
  • If the option has not reached its target profit by 3:00 p.m. Eastern time on Tuesday, January 3, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.

The shares of Verizon Communications (VZ) have formed an ascending triangle breakdown on the charts, and momentum is waning. The equity just stalled at the $40 level, where there's peak call open interest, as well as its 80-day moving average, much like it did in June and July before dumping. The stock also just closed below its 20-day moving average for the first time since its October bottom, after being rejected by the trendline for the entirety of Friday's session.

The options pits have been much more bullish than usual in the past 10 weeks. Specifically, VZ's 50-day call/put volume ratio of 3.44 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 87% of annual readings. It's important to note that whenever this ratio has been this high, Verizon Communications stock struggled and saw lower price action.

Now looks like an ideal time to speculate on VZ's next move with options, given its Schaeffer's Volatility Index (SVI) of 22% stands in the relatively low 25th percentile of readings from the past year. This means options traders are pricing low volatility expectations right now. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) ranks at 69 out of 100, indicating VZ tends to outperform said volatility estimates.

Our recommended April 40-strike put has a leverage ratio of 7.2, and will double in value on a 13.6% fall in the underlying shares.

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