What's behind strategy on Allstate


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One large investor apparently thinks that Allstate still has plenty of room to the upside.

optionMONSTER's Heat Seeker tracking system detected the purchase of 7,500 January 2012 35 calls for $3.50. At about the same time, equal-sized blocks of January 2012 30 puts and January 2012 45 calls were sold for $3.45 and $0.85 respectively.

ALL The investor collected a credit of $0.80 and will have the opportunity to earn an additional $10 if ALL reaches $45 by expiration 14 months from now. It will lose money if the shares fall below $29.20.

It's an extremely leveraged long-term strategy bet that the insurer will continue gaining after rallying 15 percent in the last six weeks. ALL closed at $32.94 yesterday, up another 1.29 percent.

The company, along with other property-and-casualty names such as Chubb and Progressive, has benefited from a positive underwriting trends as companies pay out a smaller proportion of their premiums in the form of claims. ALL's operating earnings on Aug. 4 were better than expected as it dropped less profitable customers and raised premiums.

Overall net income fell because of losses on derivative positions and weakness in the broader stock market. Given the recent rally in equities, Wednesday's option trader may expect those losses to become gains when third-quarter results are issued on Oct. 27.

The bullish strategy pushed total option volume in ALL to more than 4 times greater than average in yesterday's session.

(Chart courtesy of tradeMONSTER)

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: ALL , CB , PGR

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