Telstra at early $3s...where to from here?

Week 4 in May (ended 27 May 2011) registered high volumes on options in Telstra (TLS.ASX). In fact it was 60% higher than week 3 in May.

With TLS having traded in a 5c tight band in week 3 and 4 in May and staying around early $3, investors may be asking, are higher levels at the corner?

Let's look at some options actions to see what options traders/investors are doing.

1 Volume on calls

On examining recent call trades,  the larger trades were attributable to selling of call options. The selling of call option strategy (covered call) is often undertaken when traders/investors have the view that the underlying stock may not breach or stay above the call strike. The selling of call options at those levels can help portfolio returns with generation of income whilst holding on to stocks. The popular call strikes where selling had traded recently were at the $3.10 for Jun and July expiry terms and $3.00 in Jun. 

2 Put/call ratio
In the first 4 weeks in May, TLS has risen around 5.2%. In the first of those 3 weeks (ended 20 May 2011), its put/call ratio were nicely balanced on the call side (0.38, 0.48 and 0.24 respectively). But last week (week 4 in May), it has deteriorated, despite the share staying above $3. Its put/call ratio was still under 1, but came in at 0.94.


3 overall options volume
Increase in volume sometimes can signal a change in sentiment. Options volume was 60% higher last week than week before.


In summary
With the increase in overall volume of options traded in TLS, and putting together all the indicators demonstrated above, I am sensing that impatience has set in the stock. Traders are eyeing the $3.00/$3.10 level as possible cap for TLS in the short term.