How one trader is insuring MBIA

optionMONSTER

MBIA insures debt, and one investor wants to insure the stock.

optionMONSTER's Depth Charge monitoring system detected the purchase of 3,500 October 10 puts for $0.29 and the sale of an equal number of October 13 calls for $0.20. Volume surpassed open interest at both strikes, indicating that this is a new position.

The trade cost just $0.09 to open and will protect the investor against a pullback in the stock. He or she probably owns shares and is using the options for protection in what's known as a collar . (See our Education section)

MBI fell 0.27 percent to $11.16 on Friday but is up 17 percent since the start of August. It's been climbing along with most other financial names as sentiment toward the sector improves. The company, which backstops municipal and asset-backed debt, had traded above $60 before the 2008 subprime-mortgage crash.

The trader is now obligated to sell shares if they close above $13 on expiration. That level may have been chosen because it's been resistance twice in the last two years.

Overall option volume was 7 times greater than average in the session, according to the Depth Charge.

Disclosure: I own MBI shares.

More From optionMONSTER

View Comments (0)