Verizon May Be Ready To Break Out

U.S. stock index futures are pointing to a strong opening on Wall Street after the baseline consensus forecast for U.S. midterm elections proved correct as Democrats won control of the House, while the GOP hung on to the Senate. History has shown that mixed party control is generally the best combination for equity markets, while the highest-growth stocks can keep putting up terrific numbers even during an economic slowdown. Democrat-friendly sectors, like the biotech cohort which runs counter to Big Pharma, could also get a boost.

*Source:  Seeking Alpha

Let’s look at a set-up in Verizon (Ticker: VZ):

The VantagePoint platform has recently shown continued upside momentum. In addition, there is a key technical indicator that if VZ triggers, I want to get long.  That price is $57.92.

Strategy Discussion

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  You will first want to calculate your target strike.  In order to do this, you will need three pieces of data:  current price, expiration date and the implied volatility associated with that expiration date.  For VZ, that yields a targeted strike of ~$60.00.  You may want to consider the VZ November 23rd weekly expiration 59/60 call spread, buying it for $0.25.  The most you can lose is the premium paid and the most you can gain is the width of the spread less any premium paid.  Max risk = $0.30 and max reward = $0.70.  This means that you are getting odds of 2.33:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.