Shares of telecom company AT&T (T) are up about 8 percent over the past year, thanks in part to a strong rally over the past few weeks. One trader sees a pullback in shares in the month ahead.
That’s based on the January 2023 $19 put. With 31 days until expiration, 9,297 contracts traded compared to a prior open interest of 250, for a 37-fold rise in volume on the trade. The buyer of the puts paid $0.41.
Shares recently traded right around $19, making this an at-the-money trade. The stock set a 52-week low of $14.46 back in late September before making a big move higher.
The telecom has held fairly steady operationally in the past year, with only a 4 percent drop in revenues, and with earnings rising about 1 percent.
Action to take: Shares may be a worthwhile long-term buy on a pullback to the low $18 range or lower, as AT&T trades for just 7 times earnings, a reasonable valuation for a slow-growth company. Plus, in the $18 range, shares would trade closer to a 6 percent yield.
For traders, the put option is a reasonable trade. Besides being inexpensive, shares have had a relatively massive rally in the past few weeks that has since started to flatten out. That could lead to some downside and a high-double-digit profit on the put options.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.