Large AT&T Option Trades Mostly Bearish Following Earnings Beat

AT&T Inc. T shares traded higher by 5% on Monday to kick off what could be the biggest week of 2019 for the company.

On Monday, a flurry of large AT&T option trades were more bearish than bullish, suggesting smart money is expecting AT&T to underperform following its highly anticipated HBO Max streaming launch.

The Trades

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

• From 9:35 a.m. to 9:38 a.m., a trader sold 3,136 AT&T call options with a $35 strike price expiring on January 17, 2020 at or near ask prices ranging from $3.651 to $3.75. The series of six trades represented a bearish bet of more than $1.14 million.
• At 9:41 a.m., a trader sold 1,001 AT&T call options with a $35 strike price expiring on January 17, 2020 near bid prices ranging from $3.80 to $3.851. The two trades represented a more than $380,380 bearish bet.
• At 9:47 a.m., a trader bought 1,109 AT&T call options with a $35 strike price expiring on January 17, 2020 near the ask price at $4.00. The two trades represented an $443,600 bullish bet.
• At 11:00 a.m., a trader sold 5,000 AT&T call options with a $40 strike price expiring on Jan. 17, 2020 at the bid price of 72 cents. The trade represented a $360,000 bearish bet.

Of the 36 total large AT&T option trades on Monday morning, 10 were calls were purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The remaining 26 trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish. The three largest bearish trades mentioned above represented a combined bearish position worth roughly $1.9 million.

See Also: How To Read And Trade An Options Alert

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 Getting Ahead Of Itself?

The large option trades in AT&T come after the telecom giant reported a modest earnings beat for the third quarter on Monday. AT&T also reported 101,000 new phone subscribers, beating out the 61,000 new subscribers analysts had anticipated.

AT&T’s big week continues on Tuesday when the company is expected to provide details on pricing, bundles and content related to its HBO Max streaming service. Analysts have estimated the monthly HBO Max subscription price could be as low as $10, potentially undercutting the standard $13-per-month price of market leader Netflix, Inc. NFLX.

In addition to earnings, AT&T management also caved to activist investor Elliott Management and said it will consider adding two new board members and continue selling off up to $10 billion in non-core assets in 2020.

Benzinga’s Take

The bad news for AT&T bulls on Monday is that, while there were both bullish and bearish trades, many of the biggest trades were bearish in nature, assuming they did not represent hedges.

It’s also important to note many of the largest trades were in January 2020 calls, suggesting the trades may have represented something more longer-term than simple earnings profit-taking.

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