Option traders of telecommunication stocks are busy discussing the news that broke yesterday about Verizon’s decision to acquire AOL in a deal valued at $4.4B. Traders are already lining up on the bullish and bearish sides of both VZ and AOL options in the hopes of making gains on the strength of the news. However, I am not a fan of the crowd mentality; hence, I am looking at another stock in the telecommunication sector that offers option traders more value.
T-Mobile US Inc. (NYSE:TMUS) has my attention today as we try to profit from the buzz in the telecommunications sector. T-Mobile with its market capitalization of $27.53B is a national provider of mobile communications services with a network covering more than 280 million people throughout the United States. It generates revenue by offering postpaid and prepaid wireless voice, messaging and data services, and wholesale wireless services.
Performance in 4 Months
I last wrote about trading the options of T-Mobile on January 20, in a post titled: “Don’t Miss the Bullish Ascent on T-Mobile”. In that post, I discussed how T-Mobile is working on attracting new customers in order to increase its market share. I discussed its positive cashflow and I mentioned the fact that the stock already had a firm support at $25. Hence, I gave the stock a $32 price target when I recommended that you purchase the TMUS May 2015 30.000 call (TMUS150515C00030000) at an asking price of $2.33.
In the four months after I wrote that piece, the shares of T-Mobile have soared 22.41% from a $29 trading price to a new 52-week high of $35.50. The shares of T-Mobile closed with 1.74% gains at $34.56 in yesterday’s session. The options contract that I recommended at an asking price of $2.33 has gained an incredible 82.40% to an asking price of $4.25 in yesterday’s session. It needs no mention that the contract is set to expire this weekend; hence, it is smart to sell to close or exercise the contract to purchase the shares of T-Mobile at a discount.
The chart above shows how the shares of T-Mobile have traded within the last one year. The bullish ascent on which I based by optimism on TMUS options at the beginning of the year is still waxing strong as shown by the northbound green arrow. You’ll observe that the shares of T-Mobile had left the initial $25 support to establish another support at $31.2.
The stock has broken through the resistance at $32, and it now has another support at $33.2. The stock is currently experiencing resistance at $34.5; hence, we can expect the shares of T-Mobile to eventually break out above $34.5 or breakdown below $32.2.
I think that T-Mobile has more chances of breaking out above the resistance than breaking down below the support. For one, its 50-day moving average of $32.96 is greater than its 100-day moving average of $31.31. The 100-day MA is greater than its 200-day moving average of $30.1. Hence, it is obvious that the stock is in an uptrend. In addition, T-Mobile has an RSI at 62.46 (under 70), which suggests that the “buy-side” is still strong on the stock. I recommend that you buy TMUS call options and I am especially interested in the TMUS Aug 2015 36.000 call (TMUS150821C00036000) at an asking price of $1.25.
— Daily Option Alerts