Leveraged bet in American Capital

By David Russell,

Shutterstock photo

Someone clearly sees more upside in American Capital.

optionMONSTER's Heat Seeker monitoring program yesterday identified a giant bullish trade in the asset manager, which gapped higher last week after announcing the creation of a new private-equity fund. It subsequently fell on a poor earnings report and has held its ground since.

Yesterday's strategy included the purchase of 12,000 November 16 calls for $0.97, plus the sale of 24,000 November 13 puts for $0.36 and the sale of 12,000 November 19 calls for $0.22. Volume was more than 4 times open interest at all three strikes.

The trader collected a credit of $36,000, but the position can do a lot more to the upside or downside. If ACAS climbs to $19 by expiration, it will inflate to $3.6 million. Under $13, the trader is on the hook to buy 2.4 million shares, which implies potential losses of about $31 million in a worst-case scenario. (See our Education section for more on owning calls and selling puts .)

ACAS ended the session unchanged at $15.42 and remains in the middle of a range in place since late last year.

Total option volume was 13.5 times greater than average, according to the Heat Seeker.

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
Referenced Stocks: ACAS

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