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Most Active Options Update: AT&T Inc. (T)

An AT&T Inc. option trader rolls the dice on additional upside

by 5/8/2014 2:41 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is AT&T Inc. (NYSE:T). Dropping off the list since last time were General Motors Company (NYSE:GM) and The Procter & Gamble Company (NYSE:PG).


AT&T Inc. has shot up nearly 2% today to $36.44, following reports that DIRECTV (NASDAQ:DTV) is meeting with financial advisors to evaluate T's bid to acquire DTV. In fact, T is on pace to notch its loftiest close since last November. In the stock's options pits, overall volume has soared to three times the intraday average, and calls have emerged as the contracts of choice. Meanwhile, all 10 of the most active strikes expire in the next 2.5 months, sending T's 30-day at-the-money implied volatility (IV) 17.6% higher to 15.2%.

T's weekly 6/6 37.50-strike call has seen the most action, with 16,303 contracts exchanged. Nearly 70% of this volume hit the tape when a massive block of 11,212 contracts traded closer to the ask price for $0.31 apiece, resulting in an initial cash outlay of $347,572 (number of contracts * premium paid * 100 shares per contract). IV rose 1.5 percentage points at the transaction, and volume easily outstrips open interest, all indicators of buy-to-open activity. Based on the entry price, at-expiration breakeven for today's block trader is $37.81, which is the strike plus the premium paid. Risk, meanwhile, is capped at the initial net debit, should T remain below $37.50 over the next four-plus weeks.

Widening the scope reveals that today's call-skewed session runs counter to the withstanding trend seen in AT&T Inc.'s (NYSE:T) options pits in recent weeks. Over the course of the past 20 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 110,184 puts on T, versus 61,750 calls. Should the stock continue with today's positive price action, a capitulation from these option bears could translate into a fresh burst of buying power for T.


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