A storm of call activity tore through AT&T Inc.
(NYSE:T) options pits yesterday, with roughly 49,000 calls -- two times the daily norm and more than three times the number of puts -- changing hands. Much of this bustle was seen at T's near-the-money June 36 call, where 5,585 contracts crossed at a volume-weighted average price (VWAP) of $0.37. The majority of these contracts went off at the ask price, implied volatility increased, and open interest added 3,167 positions overnight, collectively implying heavy buy-to-open activity.
For call buyers to profit from this play at front-month expiration, T has to finish north of the breakeven price of $36.37 (strike price plus the VWAP) by the close on June 21. Though T currently stands a mere 2.3% below breakeven at $35.43, the stock has been trending negatively as of late, dropping more than 9% since reaching its multi-year high of $39.00 on April 23. Therefore, if T fails to make a turnaround, remaining south of the 36 strike, the call buyers risk losing the initial premium paid per contract.
Overall trader sentiment for T seems to be relatively bullish. During the past two weeks, speculators have bought to open more than two calls for every put, according to the stock's International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 10-day call/put volume ratio of 2.06. This ratio ranks higher than 96% of other such readings taken over the year, meaning calls are being snatched up over puts at an elevated pace.
On the other hand, the majority of analysts remain skeptical about T. In fact, 21 of the 29 analysts weighing in on the stock consider it a "hold," while six endorse it as a "strong buy," and two see it as a "strong sell."
This article by Milissa Hudepohl was originally published on Schaeffer's Investment Research.
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