Telefonica Plummets 5.17% Amid Capital Raise Rumors and Strategic Shifts – What’s Next for TEF?

Summary
• Spanish telecom giant Telefonica (TEF) slumps 5.17% intraday, trading at €5.415 amid reports of a potential capital increase and strategic contract shifts.
• A Huawei 5G contract renewal in Spain until 2030 contrasts with management’s public pledge to reduce Huawei exposure, fueling regulatory and shareholder concerns.
• Sector leader AT&T (T) rallies 0.77%, highlighting divergent performance in the telecom space.

Telefonica’s sharp selloff has drawn immediate attention as a Vozpopuli report reveals management is exploring a capital increase to fund a new strategic plan. The stock’s intraday range of €5.32–€5.43 underscores investor anxiety, while technical indicators suggest a critical juncture for the stock.

Capital Raise and Strategic Shifts Trigger Sharp Selloff
The immediate catalyst for Telefonica’s 5.17% decline stems from a Vozpopuli report citing unnamed sources close to the company. The report states that Telefonica is preparing a capital increase to fund a new strategic plan, with discussions already underway with investment bankers and key shareholders like the Spanish government and Saudi Telecom. This move, while potentially necessary for long-term growth, signals dilution risks for existing shareholders. Compounding concerns, the company’s recent decision to renew a Huawei 5G contract for retail customers until 2030—despite public commitments to reduce Huawei exposure—has raised regulatory red flags. European nations like Germany have already banned Huawei gear, and Spain’s reluctance to follow suit has created uncertainty about future compliance costs and geopolitical risks.

Telecom Sector Splits as AT&T Gains Ground
While Telefonica’s shares crumbled, AT&T (T) bucked the trend with a 0.77% intraday gain, reflecting divergent strategic trajectories. AT&T’s recent focus on AI-driven customer service and 5G expansion has bolstered investor confidence, contrasting with Telefonica’s capital-raising overhang and regulatory ambiguity. The broader telecom sector remains polarized: while some operators leverage AI and private 5G to secure market share, others, like Telefonica, face headwinds from geopolitical tensions and capital-intensive restructuring.

Options Playbook: Capitalizing on TEF’s Volatility with Strategic Puts
• RSI: 88.00 (overbought)
• MACD: 0.109 (bullish), Signal Line: 0.075 (neutral), Histogram: 0.034 (positive divergence)
• Bollinger Bands: Upper: 5.748, Middle: 5.41, Lower: 5.072 (price near lower band)
• 200D MA: 4.725 (far below current price)
• Key Support/Resistance: 5.072 (lower band), 5.208 (30D support), 5.748 (resistance)

Telefonica’s technical profile suggests a critical test of the 5.072 support level, with RSI overbought territory indicating potential for a corrective pullback. The Bollinger Bands and 200D MA divergence hint at a bearish reversal if the price breaks below the lower band. For options traders, the TEF20260320P5 put contract (strike: 5, expiration: 2026-03-20) stands out with a 31.84% implied volatility ratio, 21.68% leverage ratio, and a theta of -0.001692 (moderate time decay). Its gamma of 0.315842 ensures sensitivity to price swings, making it ideal for a 5% downside scenario where payoff would be max(0, 5.072 - 5) = 0.072. The TEF20250919P5 put (strike: 5, expiration: 2025-09-19) offers a 31.84% IV and 21.68% leverage, though its shorter duration (September 2025) limits time for the move to materialize. Aggressive short-sellers may consider the TEF20260320P5 into a breakdown below 5.072, while bulls should monitor the 5.208 support level for a potential rebound.

Backtest Telefonica Stock Performance
The backtest of TEF's performance after a -5% intraday plunge reveals favorable short-to-medium-term trends. The 3-Day win rate is 57.37%, the 10-Day win rate is 54.81%, and the 30-Day win rate is 55.21%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest period was 1.80%, which occurred on day 59, suggesting that while there is some volatility, TEF can recover from such significant intraday declines and even exceed its pre-plunge levels.

Act Now: Short-Term Volatility Looms as TEF Nears Key Support
Telefonica’s 5.17% intraday drop has positioned it at a critical inflection point, with the 5.072 support level acting as a pivotal threshold. A breakdown below this level could trigger a test of the 4.436–4.4724 200D support range, while a rebound above 5.208 might reignite short-term bullish momentum. Investors should closely monitor the capital-raising news and regulatory reactions to the Huawei contract. Meanwhile, AT&T’s 0.77% gain underscores the sector’s divergent paths. For those seeking directional exposure, the TEF20260320P5 put offers a high-leverage, high-IV play on a potential 5% downside. Watch for a breakdown below 5.072 or a regulatory crackdown on Huawei ties to dictate next steps.