Is it a good idea to trade a company you’re familiar with? Well, Peter Lynch would say “yes” — and he did pretty well for himself. But it’s also easy to get too wrapped up in thinking a good product is a good investment. So it goes both ways.
Take the company this trade idea is based off. Many people either use or see a product or service from this company every day, but as a trader, you can’t let emotions get in the way — you have to make decisions based on the fundamentals of the company and the technicals of its stock chart.
Lucky for us, either way, this idea looks pretty solid.
Verizon (NYSE:VZ — 44.12): Long Calls
The trade: Buy the Verizon (NYSE:VZ) January 44 calls for 99 cents or less.
The strategy: The long call is an options strategy that is generally used for a bullish outlook on a stock. The trade can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is theoretically unlimited because VZ can continue to rise, and the maximum loss is 99 cents if VZ finishes below $44 at January expiration. Breakeven is $44.99 based on a cost of 99 cents at expiration.
The rationale: Most people are probably quite familiar with Verizon. It provides entertainment, communications and information products to consumers and businesses worldwide. The company has a market cap of more than $124 billion, and it currently pays a juicy dividend that yields 4.7%.
Click to Enlarge VZ recently has reversed its downward trend. The stock was able to reverse just below its 200-day simple moving average, then made a new higher pivot low right at $42.60, which technically ends the downtrend. The stock has resistance right at $44, which it was able to close just above on Friday.
If VZ can hold that area and gets some help from a bullish market, it looks like it has a decent chance to make to its next resistance at $46.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.