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AT&T Option Traders Bet On a Dreary End to 2012

T's weekly puts were in focus on Friday

by 12/24/2012 10:14 AM
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Option players have been scooping up AT&T Inc. (NYSE:T -- 33.66) puts at an accelerated clip in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 10 sessions, traders have bought to open 132 puts for every 100 calls on T. The resultant put/call volume ratio of 1.32 ranks higher than 78% of other such readings taken over the past year, indicating a healthier-than-usual appetite for long puts over calls.

This trend is echoed in the stock's elevated Schaeffer's put/call open interest ratio (SOIR) of 2.41. Not only does this show that put open interest more than doubles call open interest among options expiring in the next three months, but it ranks in the 97th percentile of its annual range. In other words, short-term speculators have been more put-heavy toward T just 3% of the time within the last year.

Puts easily emerged as the options of choice in Friday's session. Roughly 43,000 contracts crossed the tape, representing more than three times the average daily put volume and nearly double the number of calls that traded. Near-term traders turned their attention to T's weekly series of options, with the stock's in-the-money 12/28 34-strike put seeing 2,832 contracts change hands. More than three-quarters of these traded at the ask price, and open interest ticked higher by 2,297 contracts this morning, indicating the initiation of new positions. Additionally, there was notable activity at the 12/28 33-strike put. Of the 2,098 contracts that changed hands here, 84% went off at the ask price and open interest also rose over the weekend.

By buying the 34 puts to open, traders need T to land below the $33.55 mark (the strike minus the volume-weighted average price [VWAP] of $0.45) by week's end -- at which point the options expire. This breakeven level is a modest 0.3% drop from current levels. Meanwhile, breakeven at expiration for the 33 puts is $32.90, or 2.3% south of T's present price.

On the charts, the Dow component had a strong start to 2012, hitting a four-year peak of $38.58 on Sept. 21. However, T has backpedaled roughly 13% since touching this milestone, which may explain the recent uptick in bearish attention from options players. This rough technical patch has been highlighted by the equity's descending 10-week moving average, which has provided a stern layer of resistance since mid-October.

At last check, the stock was hovering just below breakeven to linger near $33.66.


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