Follow Up to Trade Alert - (T) January 7, 2015
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.
Further Update to: Trade Alert - (T)
Buy the AT&T (T) February, 2015 $35-$37 in-the-money bear put spread at $1.65 or best
Opening Trade
1-7-2015
expiration date: February 20, 2015
Portfolio weighting: 10%
Number of Contracts = 60 contracts
You can buy this spread anywhere in the $1.60-$1.75 range and get good value for money. If you can?t do options, don?t bother selling short the stock. There is not enough potential downside to justify the risk/reward.
Verizon Communications (VZ) approach to AOL Time Warner about a potential takeover has focused a giant spotlight on AT&T?s woefully failing business model.
AT&T (T), or Telephone as we used to call it on the floor on the New York Stock Exchange, suffered an instant 50-cent drop today, the biggest loser in such a deal.
The move comes after a federal appeals court in Washington DC ruled that the FCC exceeded its authority when it told Verizon Communication (VZ) that it could not charge different prices to different content providers based on their bandwidth and numbers of users.
This is a reversal of the FCC's "net neutrality" rule and should allow both Verizon and AT&T to increase revenues and help protect their profits from customers who are costing them more money to service. ?Big users of broadband, like Netflix (NFLX) and Amazon (AMZN), saw their shares suffer accordingly.
You would think it would be off to the races for (T). But it won?t, as not all is well with Ma Bell. One of my first jobs at Morgan Stanley some 32 years ago was to break this company up at the direction of the Antitrust Division of the Justice Department (I carried the shareholder ballots from one floor of our building to another). I have been following it ever since.
Far a start, (T) is suffering from some major internal cash flow problems. Revenues have been stagnant for years. Its hard-wired infrastructure has been corroding away for years. The capital spending needed to fix this will be a drag on any future earnings, and is unlikely to generate any real payoff. Do you know anyone under the age of 30 who owns a landline? It?s a wireless world, baby. Did I mention that their service sucks beyond belief?
Every pension fund manager in the country already owns this stock for its generous 5.70% dividend yield. One has to ask how long the company can maintain this in the face of a stagnant business in a highly competitive industry. Now that we are in a world of rising long-term interest rates, this yield will provide much less support than it has in the past.
The hedge fund community has been aware of these difficulties for a while, and has been pounding every rally. This is why (T) completely missed out on last year?s ferocious, record setting bull market, posting a zero return for 2014, versus a 8% increase in the main indexes.
AT&T is the second oldest stock to inhabit the Dow 30, after General Electric (GE), and has long been a pillar of the investment establishment (it took a brief vacation from the index after the breakup). With 100 million customers and a market capitalization of $171 million, it certainly occupies a big footprint. Time to put this beast out of its misery.
Please note that I placed the lower $35 strike of the put spread above the top of the stock?s three month trading range. I am only going out a month to the February expiration. This will be a good bet when the main market is topping, in a stock that at best, is facing another go nowhere year.
You see, there is a method to my ?Madness.?
Keep in mind that the options market is highly illiquid now, so don?t hold me to these prices. They are ballpark estimates, at best.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don?t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
If the price of this spread has moved more than 5% by the time you receive this Trade Alert, don?t chase it. Wait for the next one. There are plenty of fish in the sea.
Here are the specific trades you need to execute this position:
Buy 60 February, 2015 (T) $37 puts at?????$4.00
Sell short 60 February, 2015 (T) $35 puts at..??.$2.35
Net Cost:??????????????????.....$1.65
Potential Profit: $2.00 - $1.65 = $0.35
(60 X 100 X $0.35) = $2,100 or 2.10% profit for the notional $100,000 portfolio.
