Call buyers bet Fortress will rise again


Fortress Investment has gone nowhere for years, and now the bulls expect a rally.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 5,000 January 3 calls for $0.80 and $0.85. Volume was more than 4 times interest at the strike.

Those long calls lock in the price investors must pay to buy shares in the beaten-down money manager, which focuses on private-equity and hedge-fund strategies. If FIG rallies, the calls will generate significant leverage because they are in the money and have a delta of about 0.80. That means they will appreciate $0.80 for every $1 that the underlying stock moves. (See our Education section)

FIG closed Friday at $3.76, up 3.87 percent. If it climbs 33 percent to $5, those calls will more than double in value. See our Education Section for more.

Sentiment has been extremely negative toward financials since last summer, when a debt-showdown in Washington and fiscal chaos in Europe unleashed a wave of panic toward the sector. As a small company that doesn't directly own real assets, FIG has been especially sensitive to the pessimism.

In the last few weeks, however, bad news such as the Libor-fixing scandal has taken less of a toll on the industry and investors have started focusing on strengthening fundamentals . They got a taste of that improvement on Friday when JPMorgan Chase and Wells Fargo rallied on robust loan growth.

If the mood continues to improve toward financials, a low-quality name such as FIG will probably outperform the broader sector and those calls will provide an extra degree of leverage. Some investors may also use options rather than shares because the company is organized as an LLC, which can generate troublesome K-1 tax forms.

Overall option volume in FIG was 51 times greater than average in the session, with calls outnumbering puts by more than 400 to 1.

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

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

This article appears in: Investing , Options

Referenced Stocks: FIG



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