At a time when Verizon’s stock price has slid over 12% from the 52 week high, today Verizon announced a deal to buy Vodaphone’s stake in Verizon Wireless, increasing earnings per share by 10 cents instantly. Before you go assuming that this is a slam dunk for Verizon’s stock price, consider that as a result of the deal Moody’s Investor Service downgraded Verizon today.
If you are thinking about trading Verizon on Tuesday based on this news, consider that the stock has strong support in the $42 range. If investors react negatively to the downgrade news and this $42 level is broken, watch out on the downside. The big money could be in the short IF (and only if) we break this level.
An interesting options strategy might be a straddle play, possibly buying puts slightly out of the money and taking a swing on some puts further out closer to this $42 level, while at the same time buying call contracts at the 47.50 level. The contradictory news of an accretive deal to earnings paired with the downgrade has made investor sentiment somewhat mixed and the price action may be difficult to decipher. Read a full technical analysis here.
Remember, while this is a tempting play, when a deal gets this much press and attention, along with contradictory news, sometimes the best trade is not taking one. This isn’t a play for the novice but if you have a good read we are definitely going to see good volume in the days ahead.