Is American International Group Inc (AIG) Flashing a 'Buy' Sign?

American International Group Inc (AIG) could be ripe for a bounce, should prevailing bearish sentiment begin to unwind

Jun 9, 2016 at 1:25 PM
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After a rough start to the year, American International Group Inc (NYSE:AIG) has been busy staging a comeback, up nearly 12% since hitting an annual low of $50.20 in late February. And in its recent climb, the stock has found the support of its rising 40-day moving average -- a trendline to which the shares have pulled back today, last seen down 0.8% at $56.17. But looking at the stock's sentiment backdrop, as well as its historical performance on similar pullbacks, it appears AIG could have plenty of room to run.

AIG Daily Chart June 9

According to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White, AIG has pulled back to its 40-day moving average a total of 11 times in the past three years. Across these instances, the shares have seen an average five-day return of roughly 0.7% -- positive 82% of the time. Looking out a bit further, this signal has yielded a typical 21-day return of 1.3%, positive 64% of the time.

The shares could be overdue for a boost from the brokerage corner, as well. Despite AIG's months-long rally, more than half of the analysts following the stock still call it a lukewarm "hold."

Pessimism has been similarly strong in the stock's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AIG has a 10-day put/call volume ratio of 1.34 -- higher than three-fourths of the past year's readings -- indicating traders have favored long puts over calls at an unusually high rate during the last two weeks. Of course, it's possible some of these puts were purchased by shareholders attempting to hedge.

This trend holds true among short-term traders, too. With a Schaeffer's put/call open interest ratio (SOIR) of 1.06, just 3 percentage points from a 12-month high, AIG has seen puts outweigh calls at a near-extreme pace, among options expiring in three months or less.

All that said, a round of bullish analyst attention or an unwinding of bearish bets in the options pits could help fuel AIG's rally back to its late-2015 levels. For traders who aren't ready to go long on the stock, this looks like an appealing time to pick up short-term AIG options. The stock's Schaeffer's Volatility Index (SVI) of 15% sits lower than 99% of all readings taken in the past year. That means premium on American International Group Inc's (NYSE:AIG) near-term options should be pricing in historically low volatility expectations at the moment.

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