Here's How Large Option Traders Are Playing High-Yield AT&T As Market Falls

AT&T Inc. T shares traded lower by 3.7% on Wednesday as the stock market experienced yet another volatile trading session.

On Wednesday, a flurry of large AT&T option trades were mixed in nature, suggesting smart money doesn’t quite know what to expect from the high-yielding AT&T following the launch of its AT&T TV streaming service and ahead of the global rollout of 5G wireless networks.

The Trades

On Wednesday, Benzinga Pro subscribers received eight option alerts related to unusually large trades of AT&T options. Here are a handful of the biggest:

• At 10:15 a.m., a trader sold 1,669 AT&T put options with a $31 strike price expiring on April 17 near the bid price at $1.081. The trade represented a bullish bet worth $180,417.
• At 10:25 a.m., a trader bought 10,000 AT&T call options with a $40 strike price expiring on April 17 at the ask price of 24 cents. The trade represented a $240,000 bullish bet.
• At 10:28 a.m., a trader sold 6,584 AT&T put options with a $32 strike price expiring on March 20 near the bid price at 44 cents. The trade represented a $289,696 bullish bet.
• At 10:33 a.m., a trader bought 19,950 AT&T call options with a $40 strike price expiring on April 17 above the ask price at 24 cents. The trade represented a $469,200 bullish bet.

Of the 62 total large AT&T option trades on Wednesday morning, 29 were calls were purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The remaining 33 trades were puts purchases at or near the ask, trades typically seen as bearish. The four largest trades of the morning mentioned above represented a combined bullish position worth roughly $1.18 million.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest AT&T trades and the fact there were so many large trades make it likely that at least some of the trades were institutions hedging against large positions in AT&T stock.

AT&T Baffling Traders

The large option trades in AT&T come after the telecom giant last week launched its AT&T TV streaming service into an increasingly crowded streaming landscape. AT&T TV will cost subscribers $45.99 for a basic package, which includes more than 100 channels and 40,000 on-demand titles. AT&T is also planning on rolling out its HBO Max streaming service in May.

At the same time AT&T is transitioning its cable TV business to a streaming model, the global smartphone market is getting pounded by the coronavirus. On Wednesday morning, BofA Securities cut its price target for iPhone maker Apple, Inc. AAPL and said the coronavirus will have a large negative impact on global demand for smartphones in the near-term.

However, analyst David Barden recently said high-yielding telecom stocks like AT&T tend to shine during periods of market weakness.

“Historically, the telecom sector has proven insulated from macro shocks and performance is at its best when ‘risk-off’ reigns,” Barden said.

Bullish sentiment among StockTwits messages mentioning AT&T was at 80% on Wednesday up from its 2020 low of 73.5% on March 3.

Benzinga’s Take

The bad news for AT&T bulls on Wednesday is that more than half of the trades were bearish in nature. The good news for AT&T bulls is that the four largest trades of the morning were bullish. In addition, most of the put buying on Wednesday morning was for contracts that expire within the next two months, suggesting they may be more of a play on negative near-term coronavirus weakness than a long-term bearish play on the direction of AT&T’s business.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

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