U.S. Markets closed

MBIA attracts big downside position

Chris McKhann (chris.mckhann@optionmonster.com)

MBIA is trading at its highest level in four months, but the financial-insurance company drew a large downside position at the end of last week.

More than 60,000 MBI options changed hands on Friday, compared to a daily average of 4,709 in the last month. Most of the action is in a long-term, out-of-the-money put trade, according to optionMONSTER systems.

A trader sold 25,000 January 2014 5 puts, with 12,500 going for $0.47 and 12,468 for $0.49 a bit later, in volume that was below the previous open interest of more than 102,000. Corresponding blocks of the January 2015 5 puts were bought for $0.97 and then $0.99 above the open interest of 3,566 in that strike.

This could be a calendar spread , which would take a maximum profit if MBI is right around $5 at that first expiration. Or this could be a roll, with the trader selling to close long puts in the 2014 expiration and moving the position out to 2015 to get an additional year for the strategy to work at just over twice the price. (See our Education section)

Shares of the company, which backstops municipal and asset-backed debt, were up 0.69 percent at $10.21 on Friday. MBI had rallied to $10.41 on Wednesday, its highest close since mid-October. 

More From optionMONSTER