Stocks quoted in this article:
American International Group, Inc. (NYSE:AIG - 34.75) is being heavily targeted by option players today. Calls are easily winning the numbers race, and at last check, around 131,000 contracts had crossed the tape, representing nearly 10 times the average intraday call volume. Meanwhile, roughly 49,000 puts had changed hands, about six times the expected pace.
AIG's more than 4% price surge in today's session has caught the attention of near-term traders, who are honing in on the stocks's 12/14 35-strike calls. Of the roughly 4,700 contracts traded, 70% have gone off at the ask price, implied volatility was last seen 6.9 percentage points higher, and open interest at this strike consists of only 1,168 contracts . In other words, it appears new positions are being initiated here.
By buying these near-the-money calls to open for a volume-weighted average price (VWAP) of $0.31, traders will begin to profit with each step north of $35.31 (the strike plus the average net debit paid) the stock takes through Friday (when these options expire). This breakeven level represents a 1.6% premium to the equity's current perch.
Today's trend toward AIG calls is a change of pace for option players, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 50-day put/call volume ratio of 0.46 ranks higher than 73% of other such readings taken over the past year, indicating puts have been bought to open over calls at a faster-than-usual clip in recent months.
As previously mentioned, the stock is soaring today after the U.S. Treasury announced it is selling its remaining stake in the insurance group. Today's positive price action only adds the equity's solid 50% year-to-date gain. More recently, AIG has enjoyed a push higher atop its 10-day moving average, a trendline that previously served as resistance throughout late October and early November.
The stock was last seen hovering near $34.75. Should the equity fail to hurdle the $35.30 mark by week's end, the most today's weekly call buyers stand to lose is the initial premium paid.