AT&T Stock has been a consistent performer but much of the reason lies in the trading range I plotted. That trading range indicated that $25.00 to $28.00 was reasonable value for AT&T Stock. You can read the entire article on AT&T Stock in “Why T Stock”.
It is important for successful investing to stay consistent. When a stock such as AT&T stock becomes overvalued, it is always better to step aside and wait for the stock to either return to the previous trading range or set a new trading range.
By trading through put selling, the concept is to earn income while avoiding stock assignment as long as possible. However by selling puts against a stock that I believe has moved into overvalued territory, I am setting my portfolio up for a possible capital loss should I be assigned shares at an overvalued price and then have to spend months or even possibly years trying to rework the put selling trade to turn it back into a profitable position.
Instead it is important to realize when a stock has left its trading range and wait to see what will occur next. There are thousands of stocks available to choose from. There is never any reason to chase a stock higher.
AT&T Stock Is Overvalued
If you have read the article WHY T-STOCK then you will understand the importance of a trading range for successful put selling. In the 3 month chart below you can see the trading range AT&T Stock has been in for some time. This month though, T Stock has been picked up by analysts who are telling investors that AT&T Stock is undervalued and should be trading at easily $35.00. This is all it takes to push a stock higher and AT&T Stock is no exception. Select this AT&T stock link to learn more about AT&T Inc for investors.
The original trading range is easy to spot for AT&T Stock. It is now overvalued.
AT&T Stock Next Action
The next action for AT&T Stock is simple. I take the capital that I had set aside to cover any possible share assignment in the stock and use it for other trades. Put selling is a strategy of earning small monthly profits. By chasing a stock higher an investor if caught in a downturn, will often buy back his sold puts for a loss. Buying back at a loss can wipe out months of gains simply because put selling brings in small profits. Therefore when an investor sells a put for perhaps .50 cents but buys it back for $2.00, this represents a stunning loss and will result in damage to the overall portfolio.
To avoid such losses it is always best to step aside and wait for the stock to return to the trading range or establish a new one. This is what I will do with AT&T stock because based on the trading range and the past years of the stock, this rise will probably last only a few months and by the fall I would expect I will be back selling puts on AT&T Stock.