Assured Guaranty has been sliding for the last three months, and one long-term trade is looking for even greater declines.
AGO finished yesterday's session at $11.94, up 2.23 percent on the day. The mortgage insurer is in the middle of the range of the last week, which saw a test of support just above $11 and then resistance at $13. Shares have been trending lower from above $19 in the last three months and last week saw their lowest close since early December.
Total option volume in the name exceeded 14,000 contracts yesterday, twice AGO's daily average in the last month. Dominating that action were the January 2014 8 puts.
A trader bought 10,000 of those options for the ask price of $1.55 on a wide spread, according to optionMONSTER's Depth Charge system. Open interest at the strike was just 2 contracts at the beginning of the session, so this is clearly a new position.
About 10 seconds before the puts were bought, a block of 200,000 AGO shares was bought for $11.95. So it appears that the overall position is a delta-hedged , long-volatility trade designed to profit if the stock moves sharply in either direction or if its volatility is greater than that implied by the puts. (See our Education section)
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