AT&T Options (T): Unusual Trading Activity

| May 3, 2012 | 0 Comments

T OptionsOptions in telecommunications company AT&T (T) are showing large options activity today.

Since AT&T reported earnings back on April 24th, the stock has been moving up in a straight line.

In fact, after its earnings, the stock soared to a new high of $33.30 before leveling off.  And today it’s holding steady around $33.00 a share.

What’s interesting is that option traders seem to be thinking T is bound for another breakout to the upside.

Why do I think this?

Simple… one very large option trade.

As I just mentioned, AT&T’s down a few pennies at $33.01.

Yet, even though the stock is down, option activity is up.

Our tracking system picked up a large short call spread (bear call spread) yesterday, which traders are still trading today.

A trader sold 15,400 T July $32 strike call options for an average price of $1.44 a piece.  Immediately following, the trader bought 15,400 T July $34 strike calls for a price of $0.37 a piece.

What we’re looking at here is an option trader that brought in a credit of $1,647,800.

But here’s the kicker… he needs AT&T’s stock to move lower and trade below $32.00 a share by July expiration.  If successful, he’ll keep this enormous amount of money as pure profit.

So, what’s going on here?

As most of you know, AT&T is the second-largest US wireless carrier.  It serves over 89 million customers and 12 million “connected devices” such as e-readers.

AT&T is also the dominant local phone company in 22 states, serving about 40 million phone lines, 16 million Internet users, and 4 million television customers.

In addition, it provides phone and data services, such as Web hosting and data transport to large businesses nationwide.

I think this large call activity is just another large institution or hedge fund thinking T, along with the broad market, is getting a little toppy.

No matter what the earnings report said, AT&T’s heavy reliance on the iPhone is still an issue.

About 30% of its retail customers use this device, and the company’s reputation has taken a hit as data-hungry users have clogged networks in some areas. These customers could be ripe for defection from the AT&T network.

Also, a large portion of its revenue and cash flow still comes from fixed-line local and long-distance phone services.  However, this business is under increasing attack from competitors such as Sprint (S) and Verizon (VZ).

Bottom line… T looks strong now, but that could change in the near future.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Tags: , , , , , ,

Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.