Take a Look at the Technicals on AT&T Before Its Earnings Release

AT&T is a high-dividend, low-volatility stock, and it is scheduled to release earnings after the close Thursday.
By Michael Thomsett ,

AT&T (T) - Get Report reports earnings after the close Thursday.

Given its low trading breadth and narrow channels of recent trading, what strategy works ahead of the report? The chart below provides a few clues.

Over the past six months, trading has remained in extremely narrow channels averaging just one point. However, the long-term trend is bullish.

In recent days, a consecutive run of doji sessions have taken price slightly lower. Overall, this chart appears moderately bullish.

In addition, AT&T reported positive earnings surprises in three of the past four quarters, which indicates a positive surprise Thursday.

Even so, given the low volatility of this issue, a cautious strategy makes sense. Based on the July 29 weekly options (expiring in eight days), a low-cost, low-risk possibility is a bullish synthetic stock.

Soon after Thursday's open, AT&T was trading at $42.50. A synthetic long can be created by opening a long $42.50 call at an ask of 0.51 (total cost $60 with trading fees) and selling a $42.50 put with a bid of 0.49 (net proceeds $40 after trading costs).

This position costs $20 overall. Its net value rises or falls with changes in the stock price.

Because its net cost is just $20 for one of each option, this is a worthwhile strategy to consider. The break even is about $42.70, only 20 cents higher than the price of the stock after the open. 

So any move in price above that level yields a net profit.

This article is commentary by an independent contributor. At the time of publication, the author owned shares of AT&T.

Besides blogging atTheStreet.com,Michael Thomsett alsoblogs at theSeeking Alphaand several other sites.He has been trading options for 35 years. He also teaches on the Candlestick Forum website. To check membership, go to Candlestick Forum membership. His new book can be viewed at tinyurl.com/z44kzlu.

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