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Option bears have been circling AT&T Inc. (NYSE:T - 36.13) in recent months, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 50 sessions, traders have bought to open 1.24 puts for every call. Plus, this put/call volume ratio ranks higher than 81% of other such readings taken in the past year, indicating bearish bets have been scooped up over bullish at a faster-than-usual clip.
T is now sporting a put-skewed Schaeffer's put/call open interest ratio (SOIR) of 2.58, which shows put open interest nearly triples call open interest on options with a three-month shelf life. What's more, this ratio ranks in the 98th percentile of its annual range, pointing to an overriding preference for puts among short-term speculators.
Puts were crossing the tape in a flurry on Thursday. Around 70,000 contracts changed hands, almost triple the average daily put volume, and nearly double the number of call contracts that were traded. Short-term speculators had their eye on the December 37-strike put. Of the 15,134 contracts that traded here, 95% crossed at the ask price. With open interest adding 12,496 contracts overnight, it's safe to assume that new positions were initiated. By buying these puts to open, bearish traders expect T to finish below $35.79 (the strike minus the volume-weighted average price of $1.21) by December expiration. The shares have not traded south of the $35.80 level since late July. At last night's close, however, the delta of this position sat at 59%, reflecting a 59% chance the put will be in-the-money by expiration.
On a technical basis, the stock has advanced 19.5% in 2012. Highlighting this strong price action has been T's 100-day moving average. Not only has this trendline provided a springboard for the stock since December, but also helped push the equity to a four-year high of $38.58 on Sept. 21.
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