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Early Christmas for Assured Guaranty?

David Russell (david.russell@optionmonster.com)

Traders are hoping Christmas comes early when Assured Guaranty reports numbers tomorrow morning.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,000 June 24 calls for $0.61. Equal-sized blocks were sold at the same time in the June 25 calls for $0.29 and the June 26 calls for $0.15. Volume was more than triple open interest in all three strikes, showing that these are new positions.

The trade cost just $0.17 and will earn a maximum profit of more than 700 percent if the financial guarantor closes at $26 on expiration. Gains will erode above that level because they sold more calls than the number they own. (See our Education section)

Sometimes known as a " Christmas tree ," the strategy was probably used in conjunction with a long position in the shares. This way, they can enjoy tremendous leverage in the event of a rally while also programming an exit. He or she may have bought the stock around $26 and now wishes to repair an underwater trade.

AGO is up fractionally at $23.48 in afternoon trading. It rallied from $21 to $26 between early February and early March but then skidded lower and has been holding its current price range for the last month. Earnings beat expectations the last two quarters.

Total option volume is 7 times greater than average in the session, according to the Heat Seeker. Calls outnumber puts by 58 to 1.

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