Telecom bulls keep skin in the game
06/01/17

The bulls have been going global, and now they’re trying to ring up more profits in a fast-moving telecom.

Vodafone (NASDAQ: VOD) shot up 16 percent in May. That was its biggest monthly gain in more than a decade, and made VOD the second-best performer in the S&P Global 100 during that period.

Options activity spiked in the London-based company yesterday to more than 10 times its daily average. A single large transaction accounted for almost all of the activity as an investor sold 5,000 January 28 calls for $2.34 and bought twice as many of the January 32 calls for $0.58. 

Calls are contracts to buy a security, so they can appreciate quickly when a stock moves higher, or expire worthless if no rally occurs. It looks like the trader purchased the 28 calls earlier in the year when VOD was lower, and chalked up some big gains as the shares advanced. Wednesday’s trade rolled positions up to the higher strike. Here’s what seems to be going on:

  • First and foremost, making the adjustment took money off the table. After all, they sold 5,000 contracts for $2.34. Multiply that by 100 (every contract controls an even lot of shares), and you can see $1.17 million was generated from that part of the transaction.
  • They turned around and shelled out $580,000 for the January 34 calls: 10,000 contracts x 100 x $0.58, not including commissions.
  • They pocketed a net $590,000 – more than half their capital before the trade occurred. 
  • They doubled the number of contracts from 5,000 to 10,000, which opens the door to more gains if the stock continues to rally. There are still eight months until expiration.
  • In other words, these bulls have grown fat at the trough and hope there’s more to come. 
Vodafone (VOD) 6-month chart

Source: OptionsHouse by E*TRADE

VOD ended yesterday up 1.34 percent to $30.26. It lost more than one-third of its value between mid-2015 and early this year, but has been clawing back recently as management streamlines operations, boosts profitability, and promises to fork more cash over to shareholders.1

There’s also been a mad dash for foreign assets lately, with S&P’s international index up twice as much as the domestically focused S&P 500 so far in the quarter. And it’s hard to be much more of a global player than VOD, which has operations in Europe, Asia, and Africa.

In summary, one big investor seems to have nailed the VOD’s recent surge and still wants to keep some skin in the game.

 

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1. Vodafone: Vodafone announces results for the year ended 31 March 2017. 5/16/17. Reuters: Vodafone promises higher dividends as cash flow set to jump. 5/16/17.