Shares of telecom company AT&T (T) dropped recently as the company completed a spinoff of its media properties. However, shares have been trending higher since. One trader sees a further move higher over the summer.
That’s based on the September $22 calls. With 151 days until expiration, 3,603 contracts traded, a 24-fold jump in volume from the prior open interest of 150. The buyer of the calls paid $0.35 to make the trade.
With shares last going for about $19.50, the stock would need to rise nearly 13 percent to move in-the-money. The stock has traded as high as $34, so even when accounting for the recent spinoff, the strike price looks like a reasonable one for shares to move over the next few months.
AT&T is down 14 percent over the past year, and revenue is down over 10 percent in the same timeframe. However, shares trade for less than 8 times forward earnings, and the stock currently trades right around its book value.
Action to take: Investors may like shares here. The company has reduced its dividend, but even at today’s prices, investors can get a starting yield of about 5.6 percent while waiting for a rebound in shares.
For traders, the September calls are inexpensive and have ample time for a rally to play out. They’re cheap enough to deliver triple-digit gains if shares move quickly enough. With the company now back to tis telecom roots, traders might want to look for a mid-to-high double-digit gain to take a profit.
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.