AT&T: Covered Calls Are Call Money Into Your Pockets

It is a brand new Monday of a brand new week of a brand new month and I say welcome to February. Today, we will take a quick trip to the tech sector without checking into Silicon Valley. In today’s piece, we will examine the options of AT&T Inc. (NYSE:T).

AT&T with its market capitalization of $172.47B is a provider of telecommunications services in the United States and worldwide. The Company services and products include wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking, wholesale services and directory advertising and publishing. AT&T operates in three segments such as Wireless, Wireline, and Other.

Why We Are Looking at AT&T Today?

AT&T delivered its fourth quarter (Q4 2014) results last week and the earnings report provided interesting insight into how to trade T options.  2014 was an investment-intensive year for AT&T; yet, the company was able to post impressive fourth quarter results as shown in the highlights below:

The company reported consolidated revenue of $34.4B to mark a 3.8% increase from the same period in 2013. The reported revenue also marks a 4.5% increase when adjusted for the sales of Connecticut wireline properties.

The company reported (earnings) loss of $0.77 per share due to non-cash charges compared to $1.31 from the comparable quarter in 2013. Excluding significant items, EPS was $0.55 per share to mark a 3.8% improvement from Q4 2013.

More than 2 million new wireless and wireline high-speed broadband connections added in the fourth quarter

Wireless revenues up 7.7 percent versus the year-ago quarter

Wireless data billings up 18 percent versus the year-earlier quarter

1.9 million total net adds with 5.6 million total net adds in 2014

Postpaid net adds of 854,000; nearly 3.3 million postpaid net adds in 2014

How to Trade T Options

From the financial highlights provided above, AT&T has had an impressive fourth quarter and staying bullish on the stock appears to be the best course of action. In fact, the stock gained 1.6% in after-hours trading after the release of its Q4 results and the stock is already up 1.11% to $33.28 per share as at 1:00PM EST today.

T Chart

However, the chart above paints a different picture entirely about AT&T’s strong business performance in relation to investor’s perception on the stock. The chart above shows how the shares of AT&T have traded in the last one year. You will observe that the stock has a resistance point at $35.5 (Red) and it has established a support level at $32 (Green). You will also observe that the stock has only gone twice beyond the resistance point and twice below the support in the last 10 months to establish the fact that the stock has been channeling in the last six months.

From the foregoing, it would be dangerous to be overly bullish or bearish on shares of AT&T because the stock has been mostly channeling in the last one year. Hence, I posit that it might be smarter to play T options with covered calls or naked puts.

AT&T is set to release its Q1 2015 results on April 20, and we can expect increased interest in the stock in the next three months. I recommend selling covered calls with the T Apr 2015 33.000 call (T150417C00033000) at an asking price of $1.35. You’ll get a take $135 for every 100 shares of AT&T that you own. The best part is that you’ll only need to deliver the shares if shares of AT&T trade above $34.35 on or before the expiry date.

 

— Daily Option Alerts

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