Extreme leverage in Verizon spread
David Russell | firstname.lastname@example.org
optionMONSTER's Heat Seeker monitoring program detected the purchase of 3,000 August 52.50 calls for $0.39 and the sale of an equal number of August 55 calls for $0.12. Volume exceeded the open interest at each strike, indicating that new positions were initiated.
Known as a bullish call spread, the trade cost just $0.27 to open and will earn more than 800 percent if the telecom giant closes at or above $55 on expiration. That would be a move of only 12 percent for the stock, which shows the kind of extreme leverage that can be achieved with options. (See our Education section)
VZ is up 0.84 percent to $49.07 in morning trading. The stock hit a 12-year high of $54.31 in late April and then retreated as a selloff in Treasuries prompted investors to unload dividend-paying stocks. It's now trying to hold support to its 100-day moving average, which could be leading some momentum traders to think that it's ready to climb again.
Total option volume is almost twice the daily average so far today, according to the Heat Seeker. Calls outnumber puts by a bullish 4-to-1 ratio.