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Monday, December 11, 2023

AIG Options Volume Surges Once Again

Today’s tickers: AIG, CAT, UAUA, WFC, HIG, CHK, FRE & SLV

AIG– Nearly 300,000 option contracts, which represent 59% of the existing open interest on the stock of 509,946 lots, exchanged hands on AIG today as investors await the release of the firm’s second-quarter earnings report tomorrow. Shares of the firm exploded nearly 63% higher yesterday to $22.00, and continued to rally during today’s session. The stock reached an intraday high of $29.39 within the first half hour of trading, but has since come off to the current price of $23.50. The put-to-call ratio of 1.04 indicates that put options were favored just slightly over call options. Trading volume was most heavily concentrated in the near-term August contract with the August 30 strike calls trading more than 31,000 times for a current premium of 1.93 apiece. Investor uncertainty has gone through the roof over the past two days, rising up from 99% at the open on Wednesday to an intraday high today of a whopping 196.5%. Volatility will likely implode following tomorrow’s earnings release. – American International Group, Inc.

CAT– It seems that one investor has decided to stick with Caterpillar for the long haul by initiating the purchase of a chunk of married puts in the January 2011 contract today. Shares of CAT are currently trading higher by less than 0.5% to $46.81. The stock has enjoyed a glorious run-up over the past four weeks, surging 36% higher from a low of $30.03 on July 10, up to a nine-month high of $48.08 attained during yesterday’s trading session. Perhaps the investor is anxious to get in on the bullish action, but is fearful that the stock may encounter some rough patches while the global economy struggles to free itself from the clutches of the recession. Thus, he chose to buy the stock but simultaneously pick up downside protection, as well. The investor bought approximately 12,500 puts at the January 2011 45 strike price for an average premium of 9.68 per contract. A great deal of the premium described is composed of time value which will erode as we near expiration in 2011. But, the investor may now watch the stock appreciate over time and feel secure in the event that shares slip lower on occasion. – Caterpillar Inc.

UAUA– The Chicago-based owner and operator of United Airlines appeared on our ‘most active by options volume’ market scanner this afternoon after one investor took an extremely bearish stance in the March 2010 contract. Shares of UAUA are currently down more than 3.5% to $5.71. Perhaps anticipating the stock to more than halve by March of next year, the trader purchased 11,100 puts at the March 2.0 strike price for a premium of 35 cents apiece. The investor may or may not hold a long position in the underlying. If he is merely seeking profits to the downside, the stock must decline 71% from the current price before profits begin to accumulate beneath the breakeven point at $1.65. Investor uncertainty regarding UAUA has steadily increased throughout the trading session, rising up from 100% at the start of the day to the current reading of 111%. – UAL Corp.

WFC– Shares of the financial services institution have relinquished earlier gains experienced today, and are currently lower by less than 0.5% to $27.96. Bearish investors flooded the nearer-term contracts and positioned themselves for further downward movement in the price of the underlying. The August 30 strike price had some 19,300 calls sold for a premium of 42 cents per contract. Call-shedders accept the 42 cent premium in exchange for bearing the risk that WFC shares rally through the breakeven price to the upside at $30.42, or the point at which potentially unlimited losses begin to accrue. Investors hungry for put options picked up about 5,700 lots at the September 27 strike price for 1.38 apiece. Profits would begin to amass for these individuals given a 9% decline in the stock through the breakeven point at $25.62 by expiration. Finally, a ratio put spread solidified the overall bearish picture on WFC. The October 27 strike price had 10,000 puts purchased for 2.08 apiece while the lower October 24 strike had 20,000 puts shed for 1.10 per contract. The trader responsible for the spread receives a net credit of 12 cents and may add to profits if WFC trades beneath $27.00 by expiration in October. Maximum potential profits of 3.00 per contract or a total of $3,000,000 – excluding the credit already received – will be attained if the stock declines 14% from the current price to $24.00. – Wells Fargo & Co.

HIG– The insurance and financial services company has realized a more than 8.5% increase in the value of its shares to stand at the current price of $17.95. Shares rallied after HIG revealed that its discretionary equity issuance plan amassed proceeds of $900 million. Call options were in heavy demand as approximately 17,300 lots were picked up at the August 20 strike price for 42 cents each. Investors expecting the stock to rally even higher by expiration targeted the August 21 strike price where some 2,300 calls were coveted for 39 cents per contract. We note that HIG has not traded higher than $20.00 since October 23, 2008. – Hartford Financial Services Group, Inc.

CHK– The natural gas and oil exploration and production company experienced a 5.5% rally in shares to $24.60 this morning amid in upgrade to ‘outperform’ at Wells Fargo. Shares rose after reports revealed that payment to CHK for its participation in a joint venture with U.S. oil firm, Plains Exploration & Production Co. (PXP), will be accelerated by PXP’s plans to sell 15 million new shares. Option traders reacted by scooping up call options in the August and September contracts. The near-term August 25 strike had more than 7,700 calls purchased for an average premium of 63 cents apiece while the more bullish August 26 strike price had 1,200 calls coveted for 33 cents each. Optimism spread to the September 25 strike where another 3,800 calls were picked up for 1.26 per contract. But, uber-bulls looked as high as the September 28 strike to buy 5,000 call options for an average price of 35 cents apiece. Shares of CHK would need to climb at least 15% by expiration in order for call buyers at the September 28 strike to begin to amass profits above the breakeven point at $28.33. – Chesapeake Energy Corp.

FRE – Shares of Freddie Mac have surged more than 12.5% to 90 cents today amid reports that the White House may relieve its balance sheet of billions of dollars in troubled assets by transferring those assets to a government-backed “bad bank”. Investors positioning for continued upward movement in the price of the underlying shares initiated bullish reversals in the near-term August contract. Approximately 10,000 puts were sold short at the August 1.0 strike price for an average premium of 22 cents per contract and spread against the purchase of 10,000 calls at the same strike for 10 cents. Traders utilizing this strategy receive a net credit of 12 cents. The stock must rally 11% higher to breach $1.00 by expiration in order for traders to add to the 12 cent credit received today. – Freddie Mac

SLV – Bearish option plays on the silver exchange-traded fund today suggest the stock is set to decline by expiration in September. Shares of the ETF are currently off slightly by 0.5% to $14.45 dampened by a rally for the dollar today. Investors purchased more than 20,000 puts at the September 14 strike price for an average premium of 50 cents per contract. If these individuals hold long positions in the underlying, the put options provide downside protection if shares fall beneath the breakeven point at $13.50. An additional indication of bearish sentiment was the sale of 1,000 calls at the September 17 strike price for 15 cents apiece. Traders receive 15 cents in exchange for bearing the risk that shares rally higher, exposing them to potentially unlimited losses to the upside. Before that might start to happen, shares would need to climb by 17.6% to reach that strike price – iShares Silver Trust ETF


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