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AT&T Inc. (T) Targeted for a Big Downside Move

AT&T Inc. is seeing an unusual uptick in put volume today

by 3/14/2014 11:24 AM
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AT&T Inc. (NYSE:T) has struggled along with the broader equities market in 2014, with the shares off more than 8%. Today's option traders seem to finally be taking note of this downtrend, and are picking up puts at a rate of more than two times the intraday average. The most active strike is the October 27 put, and it appears speculators are betting on longer-term struggles for the blue chip.

Nearly 12,000 contracts have changed hands at this deep out-of-the-money strike -- all of which have done so on the ask side. (As a point of comparison, the next most active strike has seen 1,100 contracts cross the tape.) Implied volatility at the October 27 put is on the rise, and volume easily outstrips open interest, indicating the initiation of a fresh batch of bearish bets.

While this strike sits 16.4% below the equity's current perch at $32.31, the most the traders have on the line is the initial cash outlay. According to Trade-Alert, the volume-weighted average price for the puts is a $0.44 apiece.

Today's action marks a change of pace among T option traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 2.12 ranks in the 77th percentile of its annual range. Simply stated, calls have been bought to open over puts at an accelerated clip in recent months. This has translated into a heavy accumulation of call open interest at the overhead March 33 strike, which could create near-term headwinds for T, as the hedges related to these bets unwind ahead of next Friday's close.

On the fundamental front, the Federal Communications Commission (FCC) approved AT&T Inc.'s (NYSE:T) bid to acquire Leap Wireless International, Inc. (NASDAQ:LEAP). The purchase will come at a cost of $1.2 billion to Ma Bell.


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