Telecom Stock Sends Up Sell Signal

Options traders are surprisingly upbeat on underperforming AT&T stock

Emma Duncan
Sep 25, 2018 at 3:16 PM
facebook twitter linkedin


Telecommunications concern AT&T Inc. (NYSE:T) is slightly lower in late-afternoon trading, last seen down 0.2% at $33.86. AT&T stock has already been a notable underperformer throughout 2018, but the stock's recent rally up to a key trendline with bearish implications could create an ideal entry point to bet on the equity's next leg lower. 

Specifically, T has shed 13% since the start of the year, with that decline punctuated by an April 26 post-earnings bear gap. T's post-gap rally attempt was rejected in mid-June near $34 -- site of its pre-gap lows in March and April -- and the shares went on to tag a six-year intraday low of $30.13 by late July. Now, the shares are once again trading just below that $34 mark, as well as their 200-day moving average.

Daily Chart of T with 200MA

Digging deeper, the shares are now within one standard deviation of their 200-day moving average, after a lengthy stretch below this trendline. There have been eight similar signals of this kind in the past three years, after which T went on to average a one-month loss of 3.11%, with 75% of those returns negative, per Schaeffer's Senior Quantitative Analyst Rocky White. Another dip of this magnitude would put the shares back near $32.80 by this time next month.

In the options pits, traders have been bullish, per T's 10-day call/put volume ratio of 2.51, which ranks in the 72nd annual percentile. This lofty ranking indicates that calls have been purchased over puts at a faster-than-usual pace during the last two weeks.

What's more, AT&T stock's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.51, which ranks below 100% of other such readings from the past year. This means that short-term options traders are unusually call-skewed at the moment.

With plenty of optimism that could unwind to push the stock lower, and firm technical resistance in place, it looks like an ideal time to bet bearishly on T with put options -- which are currently cheap, from a volatility standpoint. The stock's Schaeffer's Volatility Index (SVI) stands at 17%, in the 21st annual percentile, which means short-term options are pricing in fairly mild implied volatility premiums.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter