Big trader bets on iStar shooting higher


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One big investor apparently thinks that iStar Financial is ready to catch fire.

optionMONSTER's Heat Seeker system detected the purchase of more than 2,100 January 7.50 calls against previous open interest of just 721 contracts. Premiums shot up from $1.35 to $1.50 as the trades crossed.

Those long calls lock in the price that the trader must pay to buy the stock in the next 10 months. They will provide significant leverage to a rally, doubling or tripling from a relatively small move in the share price. But if the stock fails to rise, those options will end up worthless. (See our Education section)

iStar, a highly leveraged and heavily shorted commercial real-estate lender, rose 2.4 percent to $7.25 yesterday. It's been consolidating around that level since late January, when it reported better-than-expected earnings as bad loans declined.

Credit conditions have also been improving for commercial mortgages, with bankers expecting fewer defaults and easier lending standards. (See our this week's What's the Trade? column for more)

Given that backdrop, high short interest, and the relative cheapness of the stock, some investors may think that iStar is due for a rally--especially because it trades at less than half its book value.

Overall option volume in the name yesterday was quadruple its daily average, with not a single put changing hands in the session.

(A version of this post appeared on InsideOptions Pro yesterday.)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

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