T Analysis

AT&T Inc. (T)

Update 10/30/2017: T’s earnings came in at $0.74 per share, slightly below analysts’ $0.76 consensus. Shares gapped to the downside by 60 cents and then swung into a sideways movement that has so far continued for three days. I exited for a loss.

Zacks anticipated the downside surprise but at a larger magnitude, the algorithm of its Earnings Surprise Predictor giving  the event. a -0.96 score.

The first post-announcement session closed down $1.37 from the pre-earnings close, 43 cents less than the maximum move of $1.81 over the past year and well above the central tendency of $0.47.

Shares declined by 2.4% over my six-day holding period, or a -143% annual rate. The options position produced a -33.6% loss for a -2,041% annual rate.

T publishes earnings on Tuesday after the closing bell.

I shall use options that trade for the last time 10 days hence, on Nov. 3.

Implied volatility stands at 24%, which is 2.2 times the VIX, a measure of the volatility of the S&P 500 index.

T’s IV stands in the 92nd percentile of its annual range and the 88th percentile of its most recent broad movement.

The price used for analysis was $34.87.

Premium: $1.03 Expire OTM
T-iron fly Strike Odds Delta
Calls 37.00 89.5% 11
Break-even 36.03
Short 35.00 55.6% 46
Short 35.00 44.0% 54
Break-even 34.03
Long 33.00 87.2% 11

The premium is 52% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

The zone of profit in the proposed trade covers a $1.00 move either way. The biggest immediate move after each of the past four earnings announcements was $1.81, and the average was $0.83. After eliminating the maximum and minimum post-earnings movements, the central tendency is $0.57.

The expected move covering 85% of occurrences is $1.24, beyond /the profit zone.

The bid/ask spread is 7.6%.

Decision for My Account

Although the 85% expected move is greater than the profit zone, it is relatively close, and the risk/reward ratio is favorable.  I have entered a position on T as described above. The stock at the time of entry was priced at $34.85.

By Tim Bovee, Portland, Oregon, October 24, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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