Different kinds of financial institutions have rallied back at
different times since the mortgage bubble collapsed in late 2008.
First were the big securities firms, such as Goldman Sachs and
Morgan Stanley. Then came the megabanks such as JP Morgan and Bank
of America, followed by regional lenders such as BB&T and
Now the bulls are turning to the financial guarantors that had
written insurance on billions of dollars worth of bad home loans.
Although attention has been riveted on AIG since the credit crisis
began, many smaller insurers have also come under increasing
scrutiny since then.
OptionMonster's tracking systems have detected an uptick of call
activity in companies such as Assured Guaranty and MBIA, which have
both been pushing higher on signs their finances are turning a
In Assured Guaranty, for instance, a trader yesterday [Thursday
8/11] exited a position in the October 15 calls and replaced them
with October 19 calls. This trade allowed the investor to take
profits from the stock's recent run and to position for more gains.
The activity was consistent with a pattern of the last 20 sessions,
when calls on average outnumbered puts by almost 3 to 1.
Trading has been equally bullish in MBIA recently, with call volume
typically dominating the orders. Most of the activity over the last
month has concentrated on the August 8, August 9, and August 10
contracts, which investors bought and sold as the financial
guarantor staged a 36 percent rally from a low of $5.24 on July 1.
Both MBIA and Assured Guaranty have recently benefited from fewer
bad loans and better-than-expected earnings. Assured Guaranty is
also gaining a foothold in the market for insuring the debt of U.S.
cities and states, where MBIA was the leader before it lost its
top-notch AAA credit ratings.
MGIC Investment has also seen a steady flow of call buying
recently, even as the shares fell from a peak late last month. The
mortgage insurance company reported a profit of $0.13 a share on
July 20, stunning investors who had expected a $0.63 loss. However,
management warned that gains will come more slowly for the rest of
Radian Group, another company that backs home loans, has seen call
buying over the last month as well. Its finances have not yet shown
significant improvement, and its shares are trading near their lows
for the year.
(Chart courtesy of tradeMONSTER)
Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.