Call volume has picked up on AT&T Inc.
(NYSE:T) today, as option players place optimistic bets in the soon-to-be front-month series. Around 21,000 contracts have crossed the tape as of 1:25 p.m. ET, representing a 36% mark-up to the average intraday volume for call options. AT&T's March 36 call is the most popular strike heading into the final hours of the session, where roughly 8,100 contracts have changed hands. Nearly all of these have gone off at the ask price, implied volatility has ticked higher, and data from the International Securities Exchange (ISE) confirms that a number of positions have been bought to open.
By purchasing these out-of-the-money calls, traders expect AT&T to finish above $36 by the close on Friday, March 15, at which point the options will expire. More specifically, the volume-weighted average price (VWAP) for the calls is $0.24, making breakeven $36.24 (strike plus VWAP) for the option buyers. Delta for these calls is currently docked at 0.30, or 30%, suggesting a nearly 1-in-3 chance the options will finish in the money at expiration. Should the stock fail to muscle 2.8% higher over the next four weeks, the most today's bulls have risked is the initial premium paid.
Today's optimistic alignment isn't anything new for option traders, as evidenced by data from the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the past 10 sessions, speculators have bought to open 17,040 calls, compared to 11,718 puts. This put/call volume ratio of 1.45 ranks higher than 75% of other such readings taken in the last year, suggesting calls have been scooped up over puts at a faster-than-usual clip in recent weeks.
Additionally, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.14 ranks in the 37th percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward AT&T.
On the charts, the Dow
(INDEXDJX:.DJI) component has added more than 17% year-over-year. More recently, the equity has bounced 7.7% from its mid-January low of $32.76. The stock is now enjoying support from its 200-day moving average, which previously served as resistance throughout November and December. In fact, AT&T is trading just below breakeven in today's session, but is still maintaining a foothold atop this psychologically significant trendline.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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