Vimpel Communications (NYSE:VIP) is a provider of wireless telecom services in Russia, operating under the Bee Line GSM brand name. The company offers wireless services, such as voice telephony service, value-added services using short message system, unstructured supplementary services data, wireless application protocol, general packet radio service, maintenance management system technologies, interconnections with other networks and access to both national and international roaming service. VimpelCom provides it services to subscribers under two types of payment plans: contract plans and prepaid plans.
The search for bullish spread candidates was lengthy and difficult this week and the result was a very short list of mediocre positions. Considering the market's recent sharp retreat in the wake of an apparent "failed" rally, our primary objective was to find stocks that would be less affected by additional downside activity. Based on the current technical indications, we believe VIP meets this criteria (now that the tax issues with the Russian government have been resolved). In addition, there is a unique series of post-split options that may offer a small disparity for spread traders.
Although the quotes were skewed at Friday's close, we expect a viable credit to be available in the APR-31.625P/APR-33.375P spread during the coming week. Because the amount is relatively small, we are suggesting a 10-contract trade for a minimum of $0.20 per contract. After the option prices are adjusted in the open market, it may be necessary to reduce the target credit to $0.15, which would provide a 9% (maximum) return on investment if the position is successful. Based on the liquidity in each series, traders who are adept at "legging" into a combination position should have no problem establishing the spread at a favorable price.
PLAY (conservative - bullish/credit spread):
BUY PUT APR-31.625 VIP-PU OI=655 ASK=$0.30
SELL PUT APR-33.375 VIP-PV OI=1400 BID=$0.45
INITIAL "NET-CREDIT" TARGET = $0.20-$0.25
POTENTIAL PROFIT (X 10 contracts) = $200
RETURN ON INVESTMENT (max) = 12%
COST BASIS = $33.17
LOSS-LIMIT/EXIT POINT = $35.75 (cons) - $34.25 (aggr)