Bond Insurers Rack Up Heavy Put Trading Volume

05/24/2010 10:28 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Bond insurers were a popular choice in the options pits last week. While MBIA Inc. (MBI) racked up seriously heavy put volume, sector peer Ambac Financial Group (ABK) scored a healthy dose of call buying.

CLH price chartSpecifically, the International Securities Exchange (ISE) reports that traders on Thursday bought to open 24,148 puts on MBI, compared to just 205 calls. The security's single-day put/call volume ratio arrived at a lofty 117.8. In fact, MBI's ten-day ISE put/call volume ratio of 4.36 rests in the 99th annual percentile, just one percentage point from a bearish peak.

However, this heavy pessimism might not be warranted. MBI has retreated significantly from its late-April high near $11 per share, but the stock is still sitting on an impressive year-to-date gain of 71%. In today's trading, the shares are up more than 4% after meeting up with support from their 20-week moving average. If the equity continues its rebound, a capitulation by bearish bettors could translate to additional buying pressure.

ABK price chartTurning to sector peer ABK, traders on the ISE bought to open 1,303 calls on the stock, compared to a mere 50 puts. The day's skew toward bullish bets over bearish was a deviation from the norm for ABK, which has earned a ten-day ISE put/call volume ratio of 0.58, in the pessimistically slanted 85th annual percentile.

Most speculators added contracts at the June 1 call, where open interest climbed overnight by about 1,700 positions. This soon-to-be front-month option is currently right at the money.

Just like MBI, shares of Ambac have rebounded from recent weakness today after meeting up with their 20-week moving average. However, ABK's 5% rally has so far been capped by its formerly supportive 200-day trendline, which now appears to be acting as resistance.

By Elizabeth Harrow of Schaeffer’s Trading Floor Blog
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