Verizon (VZ) have been moving sideways for quite some time now and will eventually have to make a decision to either move up or down. There are some reasons I believe the stock will make a choice to move up long before the end of the year. Let's take a look at them.
Oppenheimer Holdings reiterated its Outperform rating on Verizon Communications, and raised its price target from $50.00 to $52.00. The reason for this rise in price is because Verizon and the other carriers are not spending a large portion of revenue subsidizing the iPhone 5 this time around. At the same time, the fourth quarter of the year is usually very good for these carriers. Because of this, Verizon should see a very strong showing.
On another positive note, the Communications Workers of America have a tentative agreement with Verizon protecting job and retirement security for 34,000 workers on the east coast. Earlier in 2011 there was a two week strike but workers are happy with no concessions and greater wage increases. This is important because it is good news that continues to set the stage for a positive fourth quarter for the company.
With a combination of a busy end of the year, substantially less iPhone 5 subsidies, and good news on the union contract front, it looks like the stock may break out to the upside when it is done contracting.
After moving up unabated through the year, the stock peaked in mid July-dipped, and then started up again in September and just broke through a very important resistance point at about '46.' The big question we want to answer now is whether the stock will continue to move up. The RSI indicator has been following the stock and presently looks oversold, which means we could see a short pull back, but it is not telling us anything out of the ordinary. The recent move up in the Bollinger bands looks pretty strong also, but the push up through the upper band also looks like a little pull back. The MACD, like the RSI, is also supporting the recent run up. My observations conclude a short term pullback if it continues the run up.
The Options Play
The stock is presently trading at 46.58 and I am looking at a move up long term instead of playing the shorter term bounce back down in the stock. I am looking for a bearish play to trade a break out and for this reason it will be longer term.
- Buy the January 2013 call with a strike of '47' (priced at $1.22)
- Sell the January 2013 call with a strike of '48' (priced at $0.78)
- Net Debit to Start: $0.44
- Maximum Profit: $0.56
- Maximum Risk: net debit
- Maximum Length of Trade: 4 months
Reasoning behind the Trade
- Fourth Quarter is always favorable for the carriers.
- Less iPhone 5 subsidies means less revenue taken away by Apple.
- Easing of the union strife is always favorable to a company
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.