MBIA is getting a huge vote of confidence before Monday's
optionMONSTER's Heat Seeker monitoring program detected the
purchase of 10,000 March 14 calls for $0.50. Some 5,000 March 13
puts were sold for $0.38 at the same time, along with 15,000 March
12 puts for $0.11. Volume was more than 8 times open interest at
all three strikes, indicating that new positions were initiated.
The investor paid $145,000 to open the position, which controls the
equivalent of 810,000 shares in the financial guarantor. Building a
similar position with stock would cost at least $11 million and
represent about one-quarter normal daily volume.
If it rallies over $14, the correlation would increase to 1 million
shares. There is also tremendous downside risk because they sold so
many puts--with the potential exposure to 2 million shares in the
event of a major drop. (See our
section for more on
MBI is up 1.34 percent to $13.59 in afternoon trading and has risen
24 percent in the last month. Similar companies such as Assured
Guaranty and Ambac Financial have also been strong recently, along
with Fannie Mae and Freddie Mac. All of them were battered in the
2008 credit crisis, and now they're rebounding as a group.
The fact today's trader is willing to sell large amounts of puts in
MBI reflects a belief that its numbers will be strong Monday
afternoon. Investors have already
doubled their money
in the stock with short-term upside contracts expiring today.
Total option volume in MBI is 9 times greater than average so far
in the session, according to the Heat Seeker.
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