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Like the majority of blue chips, the shares of AT&T Inc. (NYSE:T) are in the red at midday. More specifically, the stock has shed 0.8% to $33.62, in territory not charted since January. Against this backdrop, one option trader is either wagering on more downside for the telecom concern, or is buying options "insurance" to guard against a steeper slide.
Already today, T has seen roughly 37,000 puts cross the tape -- almost four times the norm. For comparison, just 12,000 T calls have changed hands.
More than half the action has transpired at the October 31 put, where close to 21,200 contracts have traded. Almost all of the puts crossed on the ask side, mostly in a block of 19,834 contracts, which traded for $0.25 -- above the ask price at the time, suggesting they were bought. Plus, volume is handily outstripping open interest at the back-month strike, hinting at new positions.
As alluded to earlier, the buyer has one of two motives: to capitalize on a breach of $30.75 (strike price minus VWAP) by the close on Oct. 18, or to lock in an acceptable price at which to unload his T stake. In the case of the latter, the protective puts insure the buyer receives $31 per share for T, should the stock retreat into annual-low territory in the short term.
So far this month, T has surrendered roughly 4.7%, and is in danger of ending August beneath its 20-month moving average for the first time since mid-2010. Nevertheless, traders are buying T calls at a rapid-fire rate. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 2.21 sits just 6 percentage points from an annual high.
As a result, the equity sports a Schaeffer's put/call open interest ratio (SOIR) of 0.63 -- lower than all other readings of the past year. In simpler terms, near-term option players haven't been more call-biased during the last 12 months.
It's worth noting, though, that short interest jumped 16.6% during the past two reporting periods, and now represents nearly a week's worth of pent-up buying demand, at AT&T Inc.'s (NYSE:T) average pace of trading. As such, it's possible that short sellers are picking up calls -- especially of the out-of-the-money sort -- to hedge against a possible bounce.