Shares of telecom giant Vodafone (VOD) have been trending down since May. However, one trader sees a potential rebound in shares ahead in the next six months.
That’s based on the April $17 calls. With 171 days until expiration, 60,066 contracts traded against a prior open interest of 364, for a 165-fold explosion in volume. The buyer of the calls paid $0.50 to make the trade.
The decline in company shares have led to a drop around $15.50, so a move to $17 would take a $1.50, or 10 percent, rally before the option moves in-the-money.
Even with the recent decline, shares are up nearly 5 percent in the past year, and the company’s most recent dividend has brought shares to a 6.8 percent yield.
Action to take: Telecom companies can be heavily indebted, and Vodafone is no exception. However, with shares trading at 14 times earnings and the company’s outlook improving coming off some losses, shares could be due for a rally here. Shareholders could be well paid along the way given the stock’s dividend yield.
For traders, the April calls are ideal. They have ample time to play out, are at a reasonable strike price relative to the stock’s 52-week high over $20 per share, and are low priced enough to potentially deliver triple-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, and does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.