This New Technology Sets Up a Trade With a Potential Gain of More Than 300%
As new technology appears, traders often find exceptional trading opportunities. That’s true in the latest technology as CNBC reported that “Verizon began selling the Samsung Galaxy S10 5G on Thursday, the first 5G phone in the U.S. that doesn’t require an accessory to work on the faster networks.
Verizon’s 5G network is available in Chicago and Minneapolis right now. It will expand to more cities throughout the year.
The Galaxy S10 5G starts at $1,299. Customers will also need to subscribe to one of Verizon’s two wireless plans that support its new network.
Verizon VZ began to sell the Samsung Galaxy S10 5G on Thursday, the first device that supports its new 5G network out of the box. It follows the Motorola Z3, which also runs on 5G, but only if you buy an additional $200 accessory that enables it.
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Verizon began activating its 5G network for phones in early April , starting with Chicago and Minneapolis, where it promised download speeds up to 1Gbps. That’s about 10x faster than you might expect on a 4G LTE phone now. Early reviews from CNET suggested the network was “confusing” and “difficult” to use at first, since it wasn’t always clear when and where 5G was available and when it wasn’t.
A member of Verizons’ corporate communications team posted this tweet, however, suggesting that 1Gbps speeds are possible, at least when the conditions are perfect:
In response to confusion in early reviews, Verizon explained to CNBC that unlike 4G LTE phones, the way a device tells you it has coverage is different. It will only show 4G LTE until you try to use 5G, after which the symbol for 5G will appear. Verizon said this will change in a couple of years, but it might be confusing for consumers who are used to looking for coverage using the icon on their phones.
The Galaxy S10 5G is a larger model of the Galaxy S10+ . It has a bigger 6.7-inch screen and six camera lenses, including a special 3D depth-sensing lens that isn’t available on the regular Galaxy S10+.
Verizon will sell two models of the Galaxy S10 5G, including a $1,299 version and a $1,399 model with twice the storage. The phone will run on 5G if customers also sign up for its Above Unlimited or Beyond Unlimited plans, which cost $95 and $85 per month, respectively, for one line. However, Verizon said that access to the 5G Ultra Wideband network is only included for a limited time and will eventually cost an additional $10 per month.
While only currently available in Chicago and Minneapolis, Verizon’s 5G network will be available in 20 U.S. cities by the end of 2019. AT&T, Sprint S-GB and T-Mobile plan to roll out their 5G networks for phones later this year. The Galaxy S10 5G will be available on those carriers too.”
Reaction to the news seems to be positive.
The stock could be prepared to challenge its recent highs.
A Trade for Short Term Bulls
As with the ownership of any stock, buying (NYSE: VZ) could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for VZ
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For VZ, the July 19 options allow a trader to gain exposure to the stock.
A July 19 $60 call option can be bought for about $0.72 and the July 19 $62.50 call could be sold for about $0.25. This trade would cost $0.47 to open, or $47 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $47
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in VZ the maximum gain is $2.03 ($62.50 – $60= $2.50; $2.50 – $0.47= $2.03). This represents $203 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $47 to open this trade.
That is a potential gain of about 331% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.