December 2020 $37 put options on
AT&T (T) recently saw a 10-fold rise in volume. Over 1,600 contracts traded on an option that had a prior open interest of just 156 contracts.
The bet expires 304 days. For the bet to move in-the-money, AT&T shares will need to drop about $1.25 from their current price near $38.25. That’s about 3.3 percent.
The buyer of the puts also paid about $2.37.
Ultimately, shares will need to trade closer to $35 to profit at expiration. That’s a drop of about 8.5 percent.
Shares of the media and telecom giant are up 25 percent in the past year, about 4 percent higher than the overall market. That doesn’t include the 5.4 percent yield.
Action to take: The company is still in the early stages of monetizing its recent acquisitions over the past few years. So far, these buys have diversified the company away from low-margin, heavily-regulated utility telecom operations into higher-margin media properties.
We see further long-term upside, supported by insider buying near current prices. Shares are more likely to languish for a while near $40 rather than drop steeply enough to justify getting into a short trade here.
With shares already priced at 10 times forward earnings and with such a high yield, we would want to buy shares if they got into the $36 or lower range.
Given the slow-moving nature of shares, we don’t like any options trades right now. On a drop, buying calls when shares get oversold would be the way to go.