Short-term options traders set their sights on blue-chip telecom titans AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) yesterday. However, both stocks are currently approaching potential layers of underfoot support.
AT&T Inc. (NYSE:T)
T followed the broad-market trend lower yesterday, and was last seen little changed at $35.69. Longer term, however, the stock has performed well on the charts, hitting a fresh annual high of $37.48 on Tuesday, thanks to fundamental developments for sector peer Windstream Holdings, Inc. (NASDAQ:WIN). In fact, since hitting an annual low of $31.74 in early February, T shares have rallied over 12%.
However, on Thursday, puts were the options of choice -- trading at a 48% mark-up to the average daily pace. What's more, T's 30-day at-the-money (ATM) implied volatility (IV) rose 19.1% to 15.4%, suggesting elevated demand for short-term contracts. Accordingly, the August 35.50 put was the equity's most active strike, with more than 6,100 contracts traded -- largely thanks to a 4,200-contract lot that changed hands just after noon ET.
Digging deeper, it appears the aforementioned block was bought to open at an ask price of $0.38 each, for a total cash outlay of $159,600 (premium paid * number of contracts * 100 shares per contract). Below the breakeven mark of $35.12 (strike less premium paid), gains will accumulate on a move all the way down to zero, while the most the put buyer has at stake is the initial premium paid, should the contracts finish out of the money two weeks from today, when front-month options expire.
In the near term, however, T is approaching a possible layer of support in the form of its 40-day moving average, last seen at $35.57. Additionally, there's a heavy accumulation of put open interest at the August 35.50 strike, potentially creating a second short-term foothold for the stock.
Verizon Communications Inc. (NYSE:VZ)
VZ has charted a path similar to AT&T lately, hitting an annual high of $53.66 on Tuesday (due to the aforementioned WIN news), and finishing lower yesterday. This morning, the shares are little changed at $50.35, as they cling to a less than 3% year-to-date lead, and are close to testing support at the round-number $50 level -- which corresponds with the security's 40-day trendline.
Bearish bettors took VZ's options pits by storm yesterday, with put volume more than doubling the expected daily average. Short-term contracts were in demand, too, per the stock's 30-day ATM IV, which rose 18.8% to 15.8%. Accordingly, VZ's two most active options were the August 50 put and weekly 8/22 49.50-strike put.
The 50-strike put was bought to open for a volume-weighted average price (VWAP) of $0.41, making at-expiration breakeven $49.59 (strike less VWAP). Meanwhile, the VWAP for the deeper out-of-the-money weekly puts was $0.40 -- making breakeven at the close on Friday, Aug. 22 (when the contracts expire) $49.10. Both sets of traders will profit south of the respective breakeven marks on a move all the way down to zero, while the most they've risked is the initial premium paid, should their long puts expire out of the money.
The Case for Big Moves in IWM and QQQ
Featured Partners: AOL DailyFinance
© 2015 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242
Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: email@example.com
All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.
Market Data provided by QuoteMedia.com | Data delayed 15-20 minutes unless otherwise indicated.