Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Cash-Secured Puts On Verizon: Boost Income Or Lower Your Price Per Share

By (Tezcan Gecgil/ )Stock MarketsMay 12, 2021 12:59
Cash-Secured Puts On Verizon: Boost Income Or Lower Your Price Per Share
By (Tezcan Gecgil/ )   |  May 12, 2021 12:59
Saved. See Saved Items.
This article has already been saved in your Saved Items

Shares of telecom giant Verizon Communications (NYSE:VZ) have returned about 6% over the past year but are flat for 2021. Compared to other tech stock that have seen double-digit returns over the past year, VZ has been a slow mover.

Nonetheless, with its current dividend yield of almost 4.3%, Verizon gets significant attention from fixed-income investors. On Dec. 2, VZ stock hit a record high of $61.95. Currently, the stock is trading just shy of $59.

Verizon Weekly Chart.
Verizon Weekly Chart.

In late April, Verizon announced Q1 results. Given the market volatility in recent days, some investors are now wondering whether profit-taking could soon pressure the stock. Others who have not yet invested in Verizon are wondering if they might have a chance to buy into the share price at a cheaper level in the near future.

Today, we look at VZ stock in light of the most recent Q1 earnings and discuss how investors could consider selling cash-secured put options on the stock. Such a trade could especially appeal to investors who want to receive premiums (from put selling) or would potentially want to own VZ shares for less than the current market price. For this piece, we'll use $58.78, which was the price at the time this piece was written.

We previously discussed the mechanics of cash-secured put selling using ExxonMobil (NYSE:XOM) stock. Readers who are new to put selling could consider reviewing that article before reading this one.

Verizon Communications

  • Intraday Price: $58.78
  • 52-Week Range: $52.85 - $61.95
  • Dividend Yield: 4.28%
  • Year-To-Date Price Change: Up 0.05%

Verizon serves around 94.2 million phone customers, including 4 million prepaid phone users. According to the most recent quarterly metrics, revenue rose by 4.7% year-over-year (YoY) to $$22.8 billion. On an adjusted basis (non-GAAP), Q1 EPS was $1.31, compared with $1.26 a year ago.

Said CFO Matt Ellis:

“We delivered strong operational and financial performance, giving us positive momentum as we end the first quarter. High quality, sustainable wireless service revenue growth, a recovery in wireless equipment revenues, strong Fios momentum and excellent Verizon Media trends led the way."

In 2021, management expects to achieve an adjusted EPS of $5.00 to $5.15 as compared to $4.30 recorded in 2020. Verizon stock’s forward P/E and P/S ratios are 11.57 and 0.46, respectively.

Let’s now look at how a trader could consider selling cash-secured options on the shares.

Selling Cash-Secured Puts On VZ Stock

Investors who write cash-secured puts are typically bullish on a stock during the timeframe that extends to the option expiry date. They generally want one of two things, i.e., either to:

  • generate income (through the premium received by selling the put), or
  • own a particular stock, but find the current market price per share (i.e., $58.78 for VZ now) higher than what they'd like to pay.

Cash-secured means the investor has enough money in their brokerage account to purchase the security if the price of the stock falls and the option is assigned.

One put option contract on VZ stock is the option to sell 100 shares. In other words, the seller of the put option should have enough money in their brokerage account to buy 100 shares of that stock at the strike price.

This cash reserve must remain in the account until the option position is closed, expires or the option is assigned (meaning ownership has been transferred).

Let’s assume an investor wants to buy VZ stock, but does not want to pay the full price of $58.78 per share. Instead, the investor would prefer buying the shares at a discount in the next 4-6 weeks.

One possibility is to wait for VZ stock to fall, which it might or might not do. The other possibility is to sell one contract of a cash-secured VZ put option.

As a result, the put seller would take on the obligation to potentially buy 100 shares of VZ at a certain price (the strike price) by the expiry date, and get paid a certain amount of premium now for taking on that obligation.

So the trader would typically write an at-the-money (ATM) or out-of-the-money (OTM) VZ put option and simultaneously set aside enough cash to buy 100 shares of VZ stock.

Let’s assume the trader is putting on this trade until the expiry date of June 18. As VZ stock is currently $58.78, an OTM put option would have a strike of 57.50. The seller would have to buy 100 shares of VZ at $57.50 if the option buyer were to exercise the option to assign it to the seller.

The VZ June 18, 2021, 57.50-strike put option is currently offered at a price (or premium) of $0.72.

An option buyer would have to pay $0.72 X 100, or $72, in premium to the option seller. This premium amount belongs to the option writer (seller) no matter what happens in the future, i.e. until or on the day of expiry. This put option will stop trading on Friday, June 18, 2021.

Risk/Reward Profile For Unmonitored Cash-Secured Put Selling

Assuming a trader would now enter this cash-secured put option trade at $58.78, at expiration on June 18, the maximum return for the seller would be $72, excluding trading commissions and costs.

The seller’s maximum gain is this premium amount if VZ stock closes above the strike price of $57.50. In that case, the option expires worthless.

If the put option is in the money (meaning the market price of VZ stock is lower than the strike price of $57.50) any time before or at expiration on June 18, this put option can be assigned, and the seller would be obligated to buy 100 shares of VZ stock at the put option's strike price of $57.50 (i.e. at a total of $5,750).

The break-even point for our example is the strike price ($57.50) less the option premium received ($0.72), i.e., $56.78. This is the price at which the seller would start to incur a loss.

On a final note, the calculation of the maximum loss assumes the put seller was assigned the option and purchased 100 shares of VZ at the strike price of $57.50. Then, in theory VZ stock could fall to zero.

Once the put seller gets assigned the option, the maximum risk is similar to that of stock ownership, but partially offset by the premium (of $72) received.

Bottom Line

Cash-secured put selling is a moderately more conservative strategy than buying shares of a stock outright at the current market price. But, as seasoned investors would concur, there are no free lunches on Wall Street.

This strategy might be appropriate for investors who want to buy (or at least do not mind buying) high-quality companies at a price that is lower than the current price. In the case of Verizon, those investors who get assigned the shares would become stock owners and also collect dividends.

Cash-Secured Puts On Verizon: Boost Income Or Lower Your Price Per Share

Related Articles

Michael Hewson
What To Expect From The Wise IPO By Michael Hewson - Jun 18, 2021

Following in the footsteps of Deliveroo (LON:ROO), Wise, the global payments fintech formerly known as TransferWise, looks set to issue shares on the London Stock Exchange by the...

Cash-Secured Puts On Verizon: Boost Income Or Lower Your Price Per Share

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Oc Masai
Oc Masai May 13, 2021 7:42
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Network coverate Effected. please understand about this issues. Thanks you
Oc Masai
Oc Masai May 12, 2021 18:27
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks you MS Tezcan
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email