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Traders with a longer-term bearish outlook on AT&T Inc. (NYSE:T) are expressing this view through the purchase of near-the-money, January-dated put options today. Overall, nearly 40,000 AT&T puts have changed hands, more than doubling what is typically expected on an intraday basis.
Most active by a mile is the January 2014 34-strike put. More than 31,000 contracts have traded (versus open interest of 15,000), and implied volatility at the strike has edged up close to 1 percentage point. The lion's share of this volume came across in the first few minutes of trading -- a block of 22,486 contracts traded at the ask price of $1.60 per contract, making the entire bet worth nearly $3.6 million (number of contracts, times the per-contract price, times the 100 shares represented by each option).
At expiration in roughly four months, the put buyer will be profitable if the stock is trading south of $32.40 (the strike price, less the original debit). If T is sitting above the strike -- as it is today, up 0.6% at $34.26 -- the put buyer will lose his premium paid (assuming he holds the options through expiration).
This hefty block of puts was tied to stock, so it's possible an investor is scooping up a large speculative stock play, but hedging the position with protective puts. It's also possible he took on the delta risk of the play (by acquiring a temporary stock position) in order to get better pricing on the large block of puts from the market maker.
Whatever the trader's goal is behind the long puts, the market is currently pricing in roughly a 3-in-5 chance of them expiring in the money, based on the delta reading of negative 0.57, or 57%. T has seen a number of bearish bets levied against it in recent weeks, as the stock struggles to remain in positive territory for the year. In the past 52 weeks, meanwhile, the shares have dropped about 10%. Last week, T was rebuffed by its overhead 80-day moving average, below which T has spent the last four months.
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