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Unusual earnings play in MBIA

Chris McKhann (chris.mckhann@optionmonster.com)

An interesting call spread targeted MBIA yesterday ahead of the financial insurer's earnings report.

A trader bought 5,000 November 12 calls for $0.29 against previous open interest of 13,209 contracts and sold 5,000 December 13 calls for their bid price of $0.28 in volume well above that strike's open interest of just 351. Forty minutes later, the trade was done again in blocks of 10,000 with the November calls bought for $0.25 and the Decembers sold for $0.26, according to optionMONSTER systems.

Either of these trades in isolation might appear to be a trader rolling a short-call position forward as the November expiration approaches at the end of this week. But the total data indicates that this is a diagonal spread , a bullish earnings play that reduces the high premium costs of the near-term calls by selling the later-dated contracts. (See our Education section)

MBI was down fractionally to close the regular session at $11.66, but it gained 2.49 percent to $11.95 in extended hours after third-quarter earnings beat estimates. Shares have been trending higher from below $10 a month ago, the lowest since the stock gapped higher at the start of May.

Almost 57,000 MBI options changed hands on the day, compared to the daily average of 4,500 over the last month.  

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