I wrote about AT&T (T) a week and a half ago and said it would have to pull back some before I threw my money at it. Now it has. Check out the attached chart at the bottom. T is sitting right on the bottom side of it’s trading channel. If you believe T will find support on this rising trend line the question becomes if you should buy the stock or buy calls. If you buy calls should they be ITM or OTM? At-the-money isn’t an option right now. What expiry should you consider? I haven’t bought a call in a couple of years if not longer, but recognize that it can be a powerful weapon and can reduce dollar losses in a downward turn although percentage losses can be bigger (100% if the option closes OTM).
I just bought four July 40 calls on T (TGH) for $132.99 including commissions. I recognize this is a somewhat odd move in that generally I think buying calls more than two months out is better because of the slower time decay. ITM calls are also good for buying since the buyer is buying intrinsic value. For me, on this one, I’m just taking an unusual risk outside of my normal process because I think T will bounce by the end of next week and I’ll profit. If I’m wrong I’ll lose less than if I sold a put on it or bought it straight out.
I started writing this post pre-market and T dropped at the open and my limit hit at .30 only to drop down to .25 soon after. Within 15 minutes after that T rebounded and is up to 39.79 now from its low of 39.12 and my calls are sitting at .50/.55, bid/ask.
On an amusing note for those who don’t work at T, I think management is trying to drive us away. I mentioned a few weeks ago that they have taken away free coffee and now as a deeper insult they are installing coffee and tea vending machines. You know, the kind you see in hospitals that tastes like someone emptied their coloscopy bag in it. I’ll ride the stock for a little longer, but will be interested to see how employee moral dives and if AT&T continues to cut out the nice parts of coming into the office.
Click on the thumbnail for a full stock chart.
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