Skepticism Ramps Up on AT&T Inc. (T) Ahead of Earnings

AT&T Inc. will report earnings after next Wednesday's close

by Karee Venema

Published on Oct 16, 2014 at 11:46 AM
Updated on Apr 20, 2015 at 5:09 PM

AT&T Inc. (NYSE:T) is down 0.5% today to trade at $33.70. This uninspiring price action is just more of the same for an equity that's off 4.1% year-to-date, though. In the stock's options pits, calls have the slight edge over puts, but it appears traders from both sides of the aisle are taking a glass-half-empty approach to the telecommunications concern ahead of next Wednesday evening's quarterly earnings report.

Taking a quick step back, short-term contracts are in high demand, as evidenced by the equity's 30-day at-the-money implied volatility, which has risen 4.1% to an annual high of 20.4%. In fact, nine of T's 10 most active options expire in five weeks or less.

The equity's weekly 10/24 35.50-strike call is among the most popular, where all of the 1,601 contracts traded have done so at the bid price, hinting at seller-driven activity. Meanwhile, IV has edged higher, suggesting new positions are being initiated. By selling to open these calls, speculators expect T to remain south of $35.50 through the close on Friday, Oct. 24 -- when the weekly series expires.

Also being targeted is the weekly 10/24 33.50-strike put, where 1,408 contracts have traded. The majority of these positions went off at the ask price and IV is up 1.7 percentage points, indicating new positions are being purchased. While some of this volume may be part of a larger spread with T's October 34 put, for those buying the puts outright, the goal is for the stock to fall south of $33.50 by the end of next week.

As touched upon, the lifetime of these weekly options encompasses the company's next turn at the earnings plate. T's post-earnings price action this year has been dreary, and over the past three quarters, the security has averaged a loss of 2% in the session subsequent to reporting. For AT&T Inc.'s (NYSE:T) third quarter, Wall Street is calling for a per-share profit of 64 cents.

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