Markets

Spike in volatility draws sellers to SLM

One investor is feasting on the volatility in Sallie Mae.

The student lender peaked around $17 in June and July, before crashing to around $12 in the recent crash. SLM ended Friday's session down 2.18 percent to $13.89.

The selloff pushed implied volatility to about 55 percent, which caused a spike in option premiums. The investor exploited that situation by selling about 20,000 October 7 calls, most of which priced for $0.44, against open interest of 10,171 contracts.

This could be the work of an investor who owns SLM shares and is simply looking to earn income, essentially betting that option premiums will decline as volatility eases in the broader market. (See our Education section)

The trader also chose the key $17 level as the price where he or she would be willing to unload the stock. Including the credit earned, the trader would get $17.44 if it goes back to that point in the next five weeks.

SLM has fared better than most financials in the last year, beating profit expectations for six straight quarters. Management also raised guidance the last time it reported earnings on July 20.

The call selling dominated Friday's activity and pushed overall options volume in the name to 4 times greater than average in the session.

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.


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

In This Story

SLM

Other Topics

Options

Latest Markets Videos