Although the Telecom service sector is really out of favor right now, I thought I’d make a Watch List for those of you that may want to go long or short the sector. Quotes are from Tuesday’s close.

AT&T (T, $33.30, down $0.39). It’s hard to like a stock when it just set a new 52-week low but here we are. I don’t like AT&T just yet and I only like it for a possible trade. In other words, I wouldn’t “back the truck up” and load up on the stock. However, I do like it for a quick trade. I think once we get through the holiday and if the market can hold up and get some kind of decent rally behind it, AT&T could move back to $37-$38. Keep the October 35 calls (TJG, $1.21, down $0.13) on your radar list. The options do not expire for four months and if they get below $1.00, we might have to pull the trigger.

Nokia (NOK, $24.21, down $0.29). I’m cautious of Nokia because there has been heavy put buying in the stock due to a possible earnings miss. The options do not expire until 7/18 and Nokia announces earnings the day before the July option contracts expire. On Monday, volume in the July 20 puts (NAYSD, $0.20, unchanged) swelled to over 11,500 contracts which brought the open interest up from 2,600 to over 14,000. This might be a stretch but if it plays out, somebody is going to make a pretty penny.

Qualcomm (QCOM, $45.82, up $1.45). This could be the one that makes a big recovery once the market gets back on a winning track. The stock was setting new 52-week highs ($50+) in mid-June and is best positioned to take advantage of the surging demand for smart-phones. Qualcomm held nearly 30% of the handset market last year and they could capture up to 50% of the market by 2010. By far my favorite stock of the group. Keep an eye on the October 50 calls (AAOJJ, $2.05, up $0.30). They could be a steal four months from now.

Verizon Communications (VZ, $35.53, up $0.13). Shares are down roughly 25% for the year but I don’t like it as much as Qualcomm.

The rest of the sector isn’t worth scanning for a trade unless you want to trade the stock as their share prices are all under $10. Alcatel-Lucent (ALU, $5.89, down $0.15), Motorola (MOT, $7.37, up $0.03) and Sprint Nextel (S,$8.83, down $0.67) round out the rest of the sector. Sprint took one on the chin today, losing 7%, as it struggles to turn its business around. Shares have been volatile of late with the release of the company’s Instinct phone (made by Samsung) as it tries to take some of Apple’s (AAPL, $174.68, up $7.24) iPhone business over the short-term.

Rick Rouse
Rick@OptionsMentoring.com