Hey, Verizon (VZ) gets the iPhone and the stock drops? What is that about? Maybe the market is thinking it will hurt VZ’s network or margins or… Nope, this is what VZ does nearly EVERY quarter.
As I went through my day Tuesday, I listened to people talking about the various reasons they thought VZ is dropping. Not a one of them stated the reason I sold calls against my VZ position on January 5th and hold long puts. I do the same thing EVERY quarter. It is my most consistently profitable trade. I count on it EVERY quarter. Have you guessed what it is? Well I’ll make you wait just a little longer.
I have learned to study the stocks I want to trade long before I trade them. I have watched VZ for a LONG time now. I back tested a bunch of option strategies against the patterns that I saw with VZ. Well over a year ago I started trading VZ with rules I developed from virtual trades and back testing. They have worked very well. When I see new possibilities, as I did this past month when VZ broke above resistance, I add it to my VZ trading rules. With options I can take as much or as little risk as I want.
So why is VZ dropping, how did I know it would drop? Well I didn’t KNOW it would drop. If I had KNOWN it would drop I would have been even more aggressive than a deep in-the-money short call and some puts. I did KNOW where and exactly when to place my short call. I had a very good idea that VZ would drop because it almost always drops after it pays its very nice dividend. That is right, I knew to place my short call on January 5th because VZ went ex-dividend on January 6th. I knew which short call to use and how to place my puts from my education and testing. VZ typically drops for several weeks after it pays its dividend. Why? The same reason every stock drops, more sellers than buyers. The rest is speculation.
I speculate that most owners of VZ buy and hold VZ for a long time to collect the dividend. Around the dividend there are people who buy it just for the dividend and then sell it once the dividend is theirs. So VZ almost always runs up into the dividend and sells off after it. That is what I trade. VZ is one of the most predictable stocks I know. I collect a nice $.4875/share dividend every quarter and pocket some nice cash from options all year-long.
Kenneth Bailey
OptionsANIMAL Instructor
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