When it comes to trading/investors, there are few things that are worse than losing money. When it comes to making money in the markets, there are no shortage of frustrations, usually why you didn’t make more. This was the case with the bullish trade we put on in Verizon (VZ) on January 14th (here), a long stock/ short call (buy-write). VZ was a stock we chose on the long side given its fat dividend yield, 100% revenue exposure to U.S., the generally defensive nature of their business and importantly normally low levels of volatility. Here was the trade from Jan 14th:
*Trade: VZ buy 100 shares for $44.60 and sell 1 Feb 46 call at 45 cents
VZ has ripped higher for two reasons, better than expected earnings last week, and the notion that the weak global growth might table the Fed’s prior intent to continue to slowly raise interest rates, making high yielders like VZ attractive again. The stock is way above our 46 strike now:
So we were right in our stock picking, and very wrong in our trade structure. It cost us potential profits and there’s not much we can do about it now. The straight line higher in the stock is probably a little near term overbought but it won’t matter either way for us, the long stock/short call position is maxed out so we’ll just take the profits and move on. Any profit in this market beats a stick in the eye, but it could have been better:
Action – Sold to close VZ at $49.95 and bough to close the VZ Feb 46 calls for 4.05
Net profit on the trade is 1.75 or about 4% on VZ stock from the entry, which is better than a sharp stick in the eye.