T July 25th Options Begin Trading

Investors selling put options on AT&T (T) at a $26 strike price, currently bid at 7 cents, commit to buying the stock at $26, effectively lowering their cost basis to $25.93 while collecting the premium. With a 66% probability of expiring worthless, this out-of-the-money put offers a potential YieldBoost of 0.27% return on cash commitment, or 1.97% annualized, while the contract's implied volatility stands at 51% compared to the stock's 24% trailing twelve-month volatility.

Analysis

The article outlines a specific options strategy for AT&T Inc. (T), focusing on selling a cash-secured put contract with a $26.00 strike price, which currently has a bid of 7 cents. This strategy would commit the option seller to potentially purchasing AT&T shares at $26.00. However, the premium collected (7 cents per share) effectively reduces the cost basis to $25.93 per share, offering a discount compared to the current trading price of $27.70. The $26.00 strike is approximately 6% out-of-the-money, and current analytical data indicates a 66% probability that this put contract will expire worthless. Should this occur, the premium would represent a 0.27% return on the cash commitment, or an annualized return of 1.97%, referred to as the 'YieldBoost'. A notable aspect is the discrepancy in volatility metrics: the implied volatility for this put contract is 51%, whereas AT&T's actual trailing twelve-month volatility (based on the last 250 trading days and the current price) is calculated at 24%. This suggests that option market participants are pricing in significantly higher potential for price fluctuation than has been historically observed for the stock.

Key Decisions for Investors

• Investors interested in acquiring AT&T (T) shares at a price below the current market level could consider selling the $26.00 strike put, thereby establishing a potential purchase price of $25.93 or earning a 1.97% annualized yield if the option expires worthless.
• The elevated implied volatility of 51% compared to the 24% historical volatility indicates that option premiums are relatively rich, which benefits sellers; however, this also implies higher perceived market risk, so investors must be comfortable with the 34% chance of assignment and owning T at the effective cost basis.
• Investors should monitor the probability of the option expiring worthless (currently 66%) and AT&T's stock price movements relative to the $26.00 strike, as these factors will directly impact the outcome and attractiveness of this specific options strategy.