Traders are looking for the next leg higher for Assured Guaranty.
optionMONSTER's Heat Seeker monitoring system detected the purchase of some 2,000 October 23 calls for $0.96 and the sale of a matching number of October 26 calls for $0.20. Volume exceeded open interest at both strikes, indicating that new positions were initiated.
Owning calls locks in the price where the bond insurer can be bought, while selling them creates an obligation to unload shares if a certain level is reached. In the case of Friday's vertical spread , the investor now has the right own AGO for $23 but must then sell the stock if it closes at or above $26 on expiration.
That $3 spread cost just $0.76 to establish, implying a potential profit of 295 percent from a move of just 15 percent in the share price. (See our Education section for more on the leverage potential of options.)
AGO rose 3.19 percent to $22.61 on Friday. It rallied about 60 percent between January and mid-May but has been shuffling in a range since. The shares have been finding support at their 100-day moving average in the last two months, which could make some chart watchers think that they're still trending higher.
Total option volume was 7 times greater than average in the session, according to the Heat Seeker.
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