How bears profited from $T losses

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It took only a week for option traders to post large gains on downside positions in AT&T.

On Oct. 5, Investitute’s tracking systems identified the purchase of 10,000 November $40 puts in one print for $1.40 as part of a bearish spread with shares at $39.70. This was clearly a new position, as volume was above the strike’s open interest of 8,671 contracts.

Those puts sold for $3.54 today, more than 2.5 times their purchase price. The stock fell less than 8 percent in that time, showing how quickly options can far outperform their underlying shares. Investitute co-founder Pete Najarian discussed the AT&T’s performance on CNBC’s “Fast Money” program this evening.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

T dropped 6.1 percent today to close at $35.86. The telecom giant, which owns satellite company DirecTV, declined after reporting the loss of 90,000 video subscribers as “cord-cutting” trends continued to send viewers to streaming services such as Netflix.

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Mike Yamamoto | Investitute

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