Grabbing Fat Dividend From Verizon With 17-Day Buy Write
This buy write on Verizon Communications
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Verizon Communications (VZ) – Buy Write
Buy 100 VZ
Sell to Open 1 October 14 $39 Call
Execute for Net Debit of $38.20 or lower
Shares of New York-based Verizon Communications (VZ) trade at their lowest levels since May 2018, and the stock yields a rich 6.7%. Revenue this year is forecast to climb 2.1% to $136.4 billion, and earnings are expected to decline 4.2% to $5.16 per share.
At 7.5 times year-ahead earnings, Verizon trades at a 33% discount to its five-year average forward price-earnings ratio of 11.1. Similarly, as a multiple of sales, the stock trades at a 29% discount to its five-year average price-sales ratio.
We will buy the stock and write calls that expire in 17 days, a period of time which should see us collect the dividend.
Here is the buy write: Buy 100 VZ ($39.05 current price), and sell to open one contract of $39 October 14 (weekly) calls. Placing your order as a combined buy write, use a net debit (stock price minus premium) of $38.25 or lower.
If VZ rallies sharply, we could be assigned early, just before the October 6 ex-dividend date, in which case we would earn $0.75 per share. If we earn the dividend, and if VZ closes above $39.00 on October 14, we would earn $1.4025 per share on $38.25 at risk, or 3.67%. Over 17 days, that would be 78.7% on an annualized basis. If Verizon closes below $39.00 on October 14, we will still own the stock at a cost basis of $38.5975 per share.
Options income for this trade: We earn $80 selling 1 VZ October 14 $39 call contract. Click here for updated bid-ask and return characteristics.
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