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U.S. stock market report 1306 ET 09July2009 Option traders bet against AIG-analyst --------------------------------------------------
Investor uncertainty over the fate of insurance company American International Group surged following an extremely bearish report from Citigroup, said Andrew Wilkinson, market analyst at Interactive Brokers Group in a note. AIG, the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citi said. AIG shares fell 20.08 percent to $10.47. Option traders looking to reel in profits on the rapid price erosion were seen gobbling up bearish near-term July put options. He noticed traders expecting more declines eyed the July $10 strike price and bought more than 4,800 puts for an average premium of $1.05 each. These traders will begin to accrue gains if AIG stock falls below the breakeven point at $8.95 by expiration. More pessimistic individuals bought puts some 2,100 times at the July $7.50 strike for 39 cents each. Perhaps these traders see shares slipping to the 52-week low on the stock of $6.60, he said. Traders expecting AIG shares to halve by expiration, bought 1,000 puts at the July $5 strike for an average premium of 13 cents per contract, Wilkinson said. |
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