Leading into this year, no one is expecting AAPL to announce something as monumental as the iPad. However, it could help AAPL and Verizon Wireless (VZ/VOD) because I think sometime in the next 30 days, AAPL could announce that VZ/VOD will carry the iPhone on its network. For AAPL, this opens up a huge wireless market that they have not had access to since the phone launched. VZ/VOD will also be a big winner in this deal as getting the iPhone will surely draw in a swell of new users. With the FCC now allowing companies to charge for data usage, getting a burst of iPhone users could be a major boon to VZ/VOD.
Of course then there are the losers in these deals, and in this case, it is clearly AT&T Wireless (T). iPhone users I know are in love with the product, but not the network it is on. For users that currently have one of the first generation iPhones and the contracts are about to expire, I am guessing that many of them will take a very hard look at Verizon Wireless, now that the company has the product they want. According to consumer reports AT&T's network scores toward the bottom in terms of customer satisfaction with its network. Meanwhile Verizon, scores at the top. I find it hard to believe that a portion of iPhone users won't migrate to the network that has, at a minimum, a better reputation.
This will also halt AT&T's ability to snag Verizon Wireless users who want the status symbol that is the iPhone. While the company may see an increase in revenue due to its ability to charge per usage, the loss of exclusivity for the I-phone could be a serious problem. Right now, AT&T is trading near a 52-week high as it has rallied along with the DJIA. At the same time, its implied volatility has fallen to levels that are near its 52-week low. I do not see how this company can continue to grow its business cell phone business, unless it substantially invests in its network.
Yes, cell phones aren't this company's only pony. The U-verse packages that it sells could put a dent in Comcast (CMCSA) and Time Warner Cable (TWC). However, when this announcement is made I expect the company to be down significantly and the implied volatility to increase at the same time, since we don't know exactly when this it is coming, I think an intermediate-term trade makes the most sense and I would buy an April put spread.
Trade: With T trading $29.70, buy to open T April 30 puts for $1.70 and sell to open T April 28 puts for $0.75.
The net buy is a T April 28/30 puts spread for $0.95.
At the time of publication, Mark Sebastian held no positions in the stocks or issues mentioned.
Mark Sebastian is COO and Director of Education for Option Pit Option Mentoring. Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the Director of Risk for a private hedge fund. He started the popular blog Option911, which is now the Option Pit blog. Sebastian has been published nationally on Yahoo! Finance, is a featured contributor for TheStreet's OptionsProfits, SFO, OptionsZone and is the managing editor for Expiring Monthly: The Option Traders Journal. Mark has a Bachelor's in Science from Villanova University.
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