What's behind big AIG call selling


A complex call trade dominated Friday's option action in American International Group as shares continued sideways.

optionMONSTER systems show that 35,000 August 45 calls were bought for the ask price of $1.86 in volume below the strike's previous open interest of 37,390 contracts. At the same time 35,000 November 47 calls were sold for $2.11 against previous open interest of just 1,523.

The trader could be selling a diagonal spread in a strategy that is generally bullish but could also profit if shares fall. But it is more likely that he or she is rolling a short-call trade forward in time.

In the latter case, the trader is moving the position to a higher strike at a later expiration date, allowing for more time and a higher profit potential. It could also have been done along with long stock in a covered call strategy. (See our Education section)

AIG finished Friday at $44.18, up fractionally but well off the sesssion's lows. The insurance giant has been in a tight range since the previous Friday after it gapped up from the $42 level. It then climbed as high as $45.85 on Monday and remained in that range for the rest of the week.

More than 137,000 AIG options traded in total, twice the daily average.

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