Call Options for Media Giant Vivendi

Call Options for Media Giant Vivendi
August 7, 2015

 
Vivendi (VIV.PA), is a clear examples of a company that is reinventing itself. They are trying get rid of assets that are simply not producing enough income, and shifting focus to new industries for growing shareholder wealth. This is seen by taking a look at its stock price which went from the €13/share area in 2012 to almost double now, €24/share. The question is, what did the company do to double its share price in such a short time?

The management had made a decision to focus on Europe and bring business closer to this core region. Also, by bringing operations closer to home, businesses are easier to control and cultural differences are not as noticeable. This translates into more efficiency, therefore a better foundation for profit. The sale of their Brazilian telecommunication arm was just the first step in this strategy. This also offered a much needed cash injection to the company, and with that money, it increased its stakes in established European telecoms companies.

As a hint that the management is a visionary one, the French media company announced plans to expand its Universal Music branch in Africa. This may look like a bold move but Africa is one of the most populous continents, with young demographics and huge opportunities. Coming back to the share price, the current €23/share seems to be on the rampage for more highs as the trend is clearly to the upside.

Fueled by the ECB (European Central Bank) and the QE (Quantitative Easing) programs, the equity markets are moving higher as investors need to park their money somewhere. If we look at other regions where QE programs were running, or are still running, (such as the US and Japan), it is proven that such programs inflate assets, namely stocks.

However, there is a catch. The current pattern price is forming looks to be a triangle, but not any kind of triangle, an expanding one. Such a triangle is characterized by making three lows and two highs in a bullish environment, and so far market made two lows and two highs.

This means that any possible call option should be bought only after the market has revisited the 21-22 area, as that is the perfect striking price. Such triangles appear as continuation patterns and it means highs will attract price as well. The moment the entry price is reached, use a one month expiration date. If you would prefer a shorter expiration, even one week should be enough as the so called b-d trend line in such a triangle should attract price.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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