MBIA is facing a downside position

Mike Yamamoto (mike.yamamoto@optionmonster.com)

MBIA seems to have stemmed its recent slide, but one large trader apparently believes that the bond insurer might resume its decline in the next six months.

optionMONSTER's Depth Charge system detected the purchase of 6,000 February 10 puts for $0.62 in less than 30 seconds on Friday. This is clearly a new position, as open interest in the strike was a mere 217 contracts before the trade appeared.  

These puts lock in the price where the stock can be sold no matter how far it might drop. They could have been purchased as a hedge on a long position or as an outright bearish bet. Either way, the options will expire worthless if shares remain above $10 through expiration in mid-February. (See our Education section)

MBI fell 1.88 percent on Friday to close at $11.99. Shares had been falling since the company posted second-quarter results on Aug. 7, but they appear to have found support around the $12 level in recent weeks.

The stock last traded below $10 before soaring more than 50 percent on May 6 when the company reached a $1.6 billion settlement with Bank of America. That deal, which ended a lengthy dispute over mortgage bonds stemming from the financial meltdown of 2008, also gave the bank the right to take a 4.9 percent stake in the insurance firm.

Total option volume in MBI topped 20,200 contracts on Friday, 5.5 times its daily average for the last month.


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