Wednesday, August 31, 2011

AT&T (T) - DOJ Antitrust, Vol and Comps

T is trading $28.73, down 3.0% with IV30™ popping 17.7% as of ~10:55am EST. The LIVEVOL® Pro Summary is below.


Click for Free Trial


AT&T Inc. is a holding company. The Company is a provider of telecommunications services in the United States and worldwide.

The news driving the stock today surrounds a DOJ antitrust action blocking the company’s takeover of T-Mobile. A snippet from ( is include below.


T is under pressure this morning, down 3.3%, after reports surfaced that the US Dept of Justice has filed to block T's previously announced acquisition of T-Mobile (DTEGY -4.6%). The deal was, for the most part, expected to pass. Conversely, S (+6.6%) is spiking higher on the news. S has been one of the largest opponents of the deal, largely because the potential T/T-Mobile deal would create a virtual duopoly in the US wireless industry that S argued would make it difficult for them to compete. CLWR (+7.6%), a boutique 4G wireless company, is also showing strength on the news. On the other hand, VZ (-0.8%) is falling on the news, after opening up higher, possibly because it could be viewed as a target by the DOJ as the country's largest wireless company.



While a bunch of companies were mentioned in that news, let’s focus on T and start with the Tick Chart for today only.

The top portion is the stock price, the bottom portion is the Sep monthly vol. The point here is simple, the stock and vol reacted abruptly on first announcement and now may have found a short-term equilibrium.

Let’s turn to the Skew Tab, next.

Note that the two expirations are the Sep 2 weeklies and the regular way Sep monthly. We can see the elevated vol in the weeklies to the monthlies. Specifically, the Sep(W) ATM vol is priced at ~34, while the Sep monthly ATM vol is priced at ~26. As of this writing, the weekly expiration vol is up 14.2 points (+63%) while the monthly expiration is up 6.1 points (28%). It’ that difference in vol gains today that accounts for the expiration-to-expiration vol diff (i.. the eight point vol diff comes from the move today).

Now let’s turn to the Charts Tab (6 months) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see pop in the implied as it is now just below the short-term historical realized vol. Both of those measures are well above the long-term realized vol. Specifically:

IV30™: 27.54

HV20: 28.88

HV180: 16.56

HV10: 24.70

It’s worth noting that HV is calculated close-to-close, so the move today in T stock will not be reflected in HV until tomorrow.

Finally, let’s turn to the Options Tab.

I wrote about this one for (OptionsProfits), so no specific trade analysis here. But, the position that had me most interested was the calendar spread as the vol diff is due entirely to the news that just came out.

What I don’t like about the spread is that should the stock recover the $0.89 it’s down today, and vols remain the same through Sep (W) expiration (i.e. Friday at close of this week), those Sep monthlies would be worth just a small amount more than the debit put on today. If the vol comes down in the Sep monthlies, those options would be worth the debit paid or less for the spread.

There’s a distinct possibility that the vol comes down in the back, and even if the weekly options expire worthless (i.e. shorts collected the full premium), that long put in the back may be a loser to the total debit. Having said that, I do believe that weekly vol collapses a bit -- especially in the downside puts.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment