Tower Group has plummeted 72 percent in just the last two months, but traders are betting that the insurance firm will bounce this week.
optionMONSTER's market scanners detected heavy buying in the October 5 calls on Friday, with large blocks pricing for $0.15 and $0.20. More than 4,300 of the options changed hands in volume well above the strike's previous open interest of 847 contracts, clearly indicating new activity.
These long calls , which lock in the price where the stock can be purchased, are looking for a quick rally because they expire at the end of Friday's session. The contracts could provide significant leverage in a rally but will expire worthless if shares remain below $5. (See our Education section)
TWGP climbed 10.02 percent to close at $4.49. It gapped down on three occasions since closing at $21.61 on Aug. 7, and there have been reports that management has hired JP Morgan to find a potential buyer for the company. Guggenheim Securities upgraded the name to "buy" from "neutral" on Friday, though it lowered its price target to $8 from $11.
Total option volume in TWGP was twice its daily average for the last month. Overall calls outnumbered puts by 14 to 1, a reflection of the session's bullish sentiment.
(A version of this post appeared on InsideOptions Pro on Friday.)
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