A Buy-Write That May PAY

Last year, there was a lot of speculation that VeriFone Systems (PAY), the erstwhile convertible issuer that makes electronic point-of-sale payment equipment, might be a takeover candidate...

June 27, 2016

9

Bill Feingold

bill@hillsideadvisors.com

Last year, there was a lot of speculation that VeriFone Systems (PAY), the erstwhile convertible issuer that

makes electronic point-of-sale payment equipment, might be a takeover candidate. It never materialized,

and after a disappointing recent report and guidance followed by Brexit fallout, the stock is at its lowest

point in three years. This isn’t to say it’s an automatic buy here, but one would have to think it’s getting the

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of what VeriFone does.

One interesting way to play this is to write long-dated calls against at least part of the stock you buy. The

logic is that if the company is a near-term takeout candidate, you want to take in as much premium as you

can against your shares. Worth considering if you want a half-hearted version are the options of January

2017: the 17-strike calls can be sold around 2.25 with the shares around 17.15. That’s a 14% standstill return

to mid-January, an annualized return of better than 25%. Worst case, you own the shares below $15—even

after some severe analyst cuts following the recent call, the lowest target on the Street is $23. That would

appear to be some decent margin for error.

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June 27, 2016

19

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