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AT&T Inc. (NYSE: T) shares are bouncing up and down today after the company posted fourth-quarter earnings of $3.1 billion, or 51 cents per share. T's profit excluding merger-related costs and other special items rose to 71 cents per share, matching analysts' estimates. T benefited from a holiday boost in sales of Apple's (NASDAQ: AAPL) iPhone, for which T is the sole wireless service provider. The company also approved a buyback of 400 million shares, or 6.6% of its shares outstanding, to be completed by the end of 2009. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on T.
After hitting a one-year high of $42.97 in September, the stock hit a one-year low of $33.32 yesterday. T opened this morning at $36.56. So far today the stock has hit a low of $35.00 and a high of $37.18. As of 10:10, T is trading at $36.28, down $0.41 (-1.1%). The chart for T looks bullish but deteriorating, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.4% return in just two months as long as T is above $30 at March expiration. AT&T would have to fall by more than 16% before we would start to lose money.
T hasn't been below $32 at all in the past year and has shown support around $36 recently. This trade could be risky if the economic concerns continue, but even if that happens, this position could be protected by support T might find around $35, where it has bounced twice over the past year.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns and controls bullish hedged positions in T.
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Reader Comments (Page 1 of 1)
1-24-2008 @ 2:09PM
NewsVisual said...
I wrote about AT&T today as well. I agree that its stock is a good buy. It holds out the potential for future appreciation. If Apple strikes deals to offer iPhone customers enterprise applications, then both Apple and AT&T will be in a strong position to win business customers.
1-25-2008 @ 12:42AM
barbara said...
AT&T is a quality stock and although it had its ups and downs....it alway paid a dividend (sometimes - less but for the most part it has paid a returned I believe even when the company was not doing as well as it did in previous times....Right now I plan to buy more of this stock.....it's a keeper!!