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Option Bulls Swarm AT&T Inc. (T) Amid M&A Talk

AT&T Inc. call buyers are unusually active today

by 5/13/2014 2:37 PM
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AT&T Inc. (NYSE:T) calls are trading at more than double the average intraday clip, and at two times the rate of puts. Garnering the most attention is the June 37 call, where nearly 21,500 contracts are on the tape -- largely thanks to blocks of 7,000 and 3,412 contracts that traded at the strike this morning. Against this backdrop, the security's 30-day at-the-money implied volatility (IV) is 8% higher at 15.4%.

Delving deeper, more than three-quarters of the activity at T's June 37 call has transpired at the ask price, suggesting the contracts were bought. Also, IV at the strike is on the rise, and volume outstrips open interest, hinting at freshly minted bullish positions. This buy-to-open theory is confirmed by data from both the International Securities Exchange (ISE) and Trade-Alert.

Today's traders are likely banking on shares of the telecom name rallying beyond $37 by July options expiration, two-plus months from now. However, with 185.90 million T shares currently sold short, representing more than six days' worth of pent-up buying demand, it's also possible the buyers are short sellers hedging against a potential move higher in the near term. No matter the motive, the most speculators have on the line is the initial premium paid.

This call-focused activity in AT&T's options pits is a bit of an anomaly, relative to recent history. During the past 10 trading days, the equity has racked up a 10-day put/call volume ratio of 1.05 on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the top quartile of all readings from the past year. Also, T's Schaeffer's put/call open interest ratio (SOIR) of 1.99 -- resting just 6 percentage points from an annual acme -- indicates put open interest doubles call open interest among options with a shelf-life of three months or less.

Technically speaking, however, AT&T Inc. (NYSE:T) has been on a roll lately. Despite slipping 1.2% to $36.15 this afternoon, the shares have still rallied nearly 14% since hitting a roughly two-year low of $31.74 in early February. Meanwhile, today's slight pullback is being contained by the security's 10-day moving average. In separate news, sources are saying T is on the brink of making a formal offer to purchase DIRECTV (NASDAQ:DTV).


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