Put traders are pummeling Verizon Communications Inc.
(NYSE:VZ) this morning, despite the stock's new 11-year high of $48.57, tagged right out of the gate. As of 11:00 a.m. EDT, the blue-chip telecom concern had seen roughly 7,700 puts change hands -- about three times its average intraday put volume.
A healthy majority of the action has transpired at the May 48 put, which has seen nearly 5,200 contracts traded on open interest of fewer than 700 contracts, pointing to a heap of new positions. Plus, most of the puts have crossed on the ask side, hinting at buyer-driven volume.
By purchasing the puts to open, the buyers expect VZ to breach the $48 level within the next couple of months. More specifically, the puts changed hands at a volume-weighted average price (VWAP) of $1.23, meaning the buyers will begin to profit if VZ falls beneath the $46.77 level (strike price minus VWAP) by mid-May. However, even if the stock extends its quest for new highs, the most the buyers can lose is the initial premium paid for the puts.
Whetting today's appetite for bearish bets could've been a negative analyst note. Goldman Sachs downgraded its opinion on VZ debt to "in line" from "outperform," citing growing expectations that VZ could soon bid for the 45% stake it doesn't yet own in Vodafone Group Plc (ADR)
(NASDAQ:VOD). If VZ makes such a move, Goldman warns that VZ bonds could weaken, and recommends investors purchase five-year protection on the wireless debt, according to Dow Jones.
Even before today's downgrade, though, the options crowd was growing more put-heavy. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.38 ranks in the 82nd percentile of its annual range. Or, in simpler terms, option buyers have picked up VZ puts over calls at a faster-than-usual clip during the past couple of weeks.
In the soon-to-expire March series of options, the 44-strike put has been popular, with open interest rocketing by more than 8,000 contracts during the past 10 sessions. Considering VZ's uptrend, though, the growing affinity for out-of-the-money puts could simply be shareholders looking to lock in profits
in case of a pullback.
At last check, the shares of VZ have surrendered 0.3% to linger in the $48.22 neighborhood.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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