AT&T Earnings Beat Could Send Options Bears Running

Recent history suggests AT&T earnings could boost the stock

Jan 24, 2017 at 10:37 AM
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AT&T Inc. (NYSE:T) earnings are due out tomorrow afternoon, and based on recent history, the stock could rally in the immediate aftermath. Specifically, following five of the last six earnings reports, the shares have advanced in the subsequent session -- with an average one-day gain of 1.3%.

A closer look at the charts reveals another reason to be hopeful toward T. Despite pulling back 1.6% this morning to trade at $41.35, the stock is perched just above the 61.8% Fibonacci retracement of its July 2016 high and November 2016 low. This could translate into support for the shares, and contain a potential pullback, in the event that tomorrow's quarterly results underwhelm -- just as Verizon Communications Inc. (NYSE:VZ) earnings disappointed today.

t daily fibonacci jan 24

Meanwhile, if AT&T earnings beat expectations, a capitulation among bears could intensify buying power. For starters, the stock's 10-day put/call volume ratio of 1.27 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) rests near the top one-third of all readings taken in the last 12 months.

What's more, T could receive analyst upgrades, as two-thirds of covering brokerage firms consider the stock a tepid "hold." Not to mention, a short-squeeze situation could materialize, as 95 million shares are sold short -- which would take over a week to buy back, at the stock's average daily trading levels.

That said, it should be noted that T stock has struggled during the first year of presidential cycles, historically speaking. Dating back to 2005 cycle, the shares have been positive just once, and on average, have lost 0.8% during the year.

In any case, those looking to place short-term options bets -- whether bullish or bearish -- could score a bargain at the moment. AT&T boasts a Schaeffer's Volatility Scorecard (SVS) of 93. In other words, the stock has tended to make bolder-than-expected moves in the past 12 months, relative to what the options market has priced in.

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