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Most Active Options Update: AT&T Inc.

AT&T Inc.'s upside attracts the attention of option bulls

by 7/15/2014 1:16 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).


AT&T Inc. is bucking the slight broad-market trend lower this afternoon, up 1% at last check to trade at $36.22. The positive price action has sparked a rush of call activity in the equity's options pits, with the contracts running at nearly two times what's typically seen at this point in the day. By the numbers, roughly 26,000 calls have changed hands thus far, compared to fewer than 9,800 puts. Meanwhile, short-term contracts are in high demand, as evidenced by the stock's 30-day at-the-money implied volatility (IV), which is up 2.2% at 12.7%.

Specifically, the most active T strike today is the July 36.50 call, where 3,165 contracts are on the tape. Nearly all of these traded at the ask price, IV has edged higher, and only 41 contracts are currently in residence here -- all signs of buy-to-open activity. Breakeven at this Friday's close, when front-month options expire, is $36.54 (strike plus the volume-weighted average price of $0.04). Profit for today's call buyers will accrue with each additional step north of here, while risk is capped at the initial premium paid, should T close out the week south of the strike price.

Today's call-bias only mimics the withstanding trend seen at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where T's 10-day call/put volume ratio of 3.43 ranks in the bullishly skewed 90th annual percentile. However, there may an ulterior motive at hand, considering the stock sports a short interest ratio of 10.2, which means it would take more than two weeks to cover all of T's shorted shares. Simply stated, the recent rise of call buying -- particularly at out-of-the-money strikes -- may be at the hands of shorts hedging against any additional upside for AT&T Inc. (NYSE:T). What's more, should the equity sustain its recent technical strength, a short-squeeze rally could potentially ensue.


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