Disappointed investors dragged AT&T Inc. (NYSE:T) shares behind the woodshed yesterday following worse-than-expected earnings. And this came after the stock was already down 12% in the month before the release. Pain and horror have come to visit the telecom giant just in time for Halloween.
The persistent weakness in T stock is particularly annoying given the broader market’s gravity-defying ascent. Tagging a new 52-week low while the S&P 500 is notching record highs is the ultimate sign of relative weakness.
From a technical perspective, AT&T stock doesn’t have much going for it. Given the recent drubbing, T stock is submerged well beneath every major moving average. Downtrends are ruling the roost across all time frames, and volume patterns are backing the bears here. Distribution days pockmark the landscape like acne on a teenager.
But for all its bearishness, I think the better play for T is to nibble on the long side.
It’s a contrarian view, to be sure, but with a pair of major support levels looming closely and implied volatility still lofty, short put plays are paying a decent return.
Attention Contrarians! Sell T Stock Puts
For readers otherwise unfamiliar with selling puts, a brief review is in order.
Selling a put is a strategy that allows you to get paid for your willingness to buy a stock at a discount. It’s like a savvy limit order. If the high dividend yield of 5.8% has you interested in scooping up some shares, why not get paid to do so? It sets up a potential win-win.
If AT&T shares don’t fall from here, you get to keep the premium you were paid up front. And if the stock does drop, then you get to buy it at a decent discount to the current price.
Sell the Dec $33 puts for 49 cents. If the stock sits above $33 at expiration, you’ll pocket the 49 cent premium. And if T shares fall beneath $33, then you’ll be obligated to buy 100 shares per contract sold at an effective purchase price or $32.51.
As of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
