Interesting T Put And Call Options For November 7th

The article outlines two options strategies for AT&T (T) shares, currently trading at $28.52, leveraging implied volatility significantly above historical levels. Selling a cash-secured put at the $28.00 strike for 60 cents offers a potential entry at an effective $27.40, with an 18.17% annualized return if the option expires worthless (58% probability). Alternatively, selling a covered call at the $29.00 strike for 60 cents yields a 3.79% return if the stock is called away by the November 7th expiration, or a 17.84% annualized return if it expires worthless (51% probability), providing income generation for existing shareholders.

Analysis

Analysis of AT&T (T) options reveals a significant premium in implied volatility (IV) relative to its observed price movements. The IV for near-the-money options is currently priced at 44-45%, which is nearly double the stock's actual trailing twelve-month volatility of 23%. This dislocation presents opportunities for premium-selling strategies. For investors seeking to acquire the stock, selling the $28.00 strike put contract for a 60-cent premium could establish a position at an effective cost basis of $27.40, a discount to the current $28.52 share price. This strategy has a 58% statistical probability of expiring worthless, which would generate an 18.17% annualized return on the cash commitment. Alternatively, for existing shareholders, selling a covered call at the $29.00 strike for a 60-cent premium offers a method for income generation. This would result in a 3.79% total return if the stock is called away by the November 7th expiration or provide an annualized yield boost of 17.84% if the option expires worthless, an event with a 51% probability. Both strategies are designed to capitalize on the elevated options pricing.

Key Decisions for Investors

• Consider strategies that capitalize on elevated implied volatility in AT&T options, as the current IV of 44-45% stands significantly above the 23% trailing historical volatility, presenting a premium-selling opportunity.
• Investors with a bullish-to-neutral outlook seeking a disciplined entry point in T could sell the $28.00 cash-secured put to either acquire shares at an effective cost of $27.40 or earn an 18.17% annualized yield if the option expires out-of-the-money.
• Current shareholders of T can generate income by writing the $29.00 covered call to capture premium, but must accept that this strategy caps total return at 3.79% by expiration and forgoes any share price appreciation beyond the $29.00 strike.