Assured Guaranty gets upside bet

optionMONSTER

A bullish combination trade led yesterday's option activity in Assured Guaranty.

optionMONSTER systems show that 9,459 AGO options traded, compared to a daily average of 2,683. The volume was dominated by a three-way combination trade in the mortgage-insurance company.

A trader bought 1,500 January 22 calls for the ask price of $1.42 and sold 3,000 January 27 calls for their bid price of $0.25 to complete a ratio spread , then sold 3,000 January 16 puts to further offset the cost of the long calls . The volume was higher than previous open interest in all three strikes, so this is clearly new positioning.

The combination trade cost a net $0.22 to open, which is the amount at risk if AGO is between $16 and $22 by mid-January. The maximum gains would be realized with the stock right at $27 at expiration. (See our Education section)

AGO gained 1.89 percent yesterday to close at $21 even. The stock was as low as $20.31 on Wednesday, matching its low from May 1. Overhead resistance has been holding at $23.

 

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