Options Bulls Should Take a Closer Look at American International Group Stock

Oversold American International Group Inc could be set to take off again, should bears hit the bricks

Mar 27, 2017 at 11:07 AM
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American International Group Inc (NYSE:AIG) topped out at an eight-year high of $67.47 in early January, and has since pulled back -- trading down 0.7% at $60.46 today, as the broad market dives. The insurance stock could be set to take off again soon, though, with its 14-day Relative Strength Index (RSI) of 28 indicating the shares are now oversold. Plus, there's plenty of room for an unwinding of bearish positions to give AIG stock a lift.

Looking at the charts, shares of AIG are trading above the round $60 mark, which has been providing support in recent months, after acting as resistance in August and September. The stock also broke below its lower Bollinger Band last week -- a historically bullish signal. What's more, AIG has been one of the top stocks in the month of April over the past five years, averaging a gain of 5.9%, and ending the month positive 100% of the time.

AIG Daily Chart March 27

Turning to the brokerage bunch, AIG has earned six "buy" or better ratings from analysts, compared to an equal number of "hold" or worse recommendations. A round of upgrades could send the stock on a fresh leg higher.

Options traders have also taken an unusually pessimistic stance on AIG of late. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), put buying has more than doubled call buying over the past two weeks. Moreover, the resulting put/call volume ratio of 2.07 ranks higher than 76% of the past year's readings. Plus, call players seem less than optimistic toward AIG, with 1.52 call options sold to open for each one bought during the past 10 sessions.

It's a more appealing time to buy premium on AIG options than to sell it, though. The stock's Schaeffer's Volatility Index (SVI) of 16% sits lower than 90% of all comparable readings from the past 12 months. Simply stated, American International Group Inc's (NYSE:AIG) near-term options are currently pricing in historically low volatility expectations.

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