WorldCom Bombshell
WorldCom
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PowerRating) announced that it plans to realign its businesses and
create two new “tracking” stocks. Obviously the analysts weren’t
exactly awed by the concept, as WCOM’s biggest problem is its
consumer long-distance telephone business, which is hardly addressed by
this most recent move.
Then the company hit the market with the real bombshell. They lowered their earnings and revenue guidance for the fourth quarter and 2001! We were
expecting earnings of $.49 and now they say they will be just $.34 – $.37,
hardly good news for a company that desperately needed some.
The average daily option volume has been 45,000, with an implied volatility in
the low 60% range, but yesterday the volume picked up to 52,000 contracts and
volatility was 67%. November volatility shot up to 90 on this morning’s 4
1/4
point sell off.
If traders are looking for a cheap shot, they might find the March 20 — 27-1/2 call
spread interesting. By paying 3 1/2 for the March 20’s and selling the March 27
1/2’s for 1
1/8, they’re only paying 2 3/8 for the 7-1/2 point bull-call spread. The spread
gives the investor time for a recovery, as well as positioning them to benefit
from the distribution of a new tracking stock, to be known as MCI. That
tracking stock will be made as a tax-free distribution to shareholders of a
100 percent interest in MCI. The company says it plans to complete the new
issue during the first half of 2001.
If they want to take an even cheaper shot, they could buy the March 22 1/2 –
27-1/2 call spread for a mere 1 3/8.