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Bearish bettors descended upon AT&T Inc. (NYSE:T) in droves on Friday, as roughly 42,000 puts changed hands throughout the session -- more than double the equity's average single-session put volume. By contrast, around 20,000 calls crossed the tape, which was below the norm. It appears that a large number of traders are expecting T to backpedal into territory last explored more than a year ago within the course of the next eight weeks.
Most active by a mile (and echoing last Wednesday's activity) was the out-of-the-money October 31 strike, where nearly 21,700 puts were exchanged -- 98% of them at the ask price, signaling buyer-driven volume. Meanwhile, open interest at this strike skyrocketed by 20,501 contracts over the weekend, confirming the initiations of new positions.
Since the puts traded at a volume-weighted average price (VWAP) of $0.23, speculators will begin to profit with each step T takes south of breakeven at $30.77 (strike price less the VWAP) between now and October expiration. This reflects a drop of 10.4% from the stock's current perch at $34.36, as well as a level not breached on a daily closing basis since late April 2012.
At last check, the delta for this put stood at negative 0.12, suggesting it has just over a 1-in-10 chance of moving into the money ahead of the close on Oct. 18. Should T remain above the $31 mark between now and then, the most Friday's put buyers will be forced to part with is the initial premium paid. What's more, the stock's Schaeffer's Volatility Index (SVI) of 14% ranks lower than all but 21% of similar readings taken within the past year, implying T's near-term options are relatively cheap right now.
AT&T Inc. (NYSE:T) has struggled on the charts for some time, gaining just 2% year-to-date, and shedding about 7% on a year-over-year basis. Adding insult to injury, the shares have lagged the broader S&P 500 Index (SPX) by north of 6 percentage points during the past two months.