Thursday, December 9, 2010

AIG - Vol Explodes on Bailout Ownership Changes

AIG is trading $46.22, up 9.5% with IV30™ up 35.6%. The LIVEVOL™ Pro Summary is below.

Bailed-out insurance conglomerate American International Group Inc. is taking a key step toward paying off a bailout that was at one point worth US$182 billion the largest of the financial crisis.

The company says in a public filing Wednesday that it will pay off a loan from the Federal Reserve Bank of New York. AIG says that will clear the way for the Treasury to sell off the government's stake. Treasury's stake in AIG will temporarily rise from roughly 80 per cent to 92 per cent, as part of the deal.
Source: The Canadian Press

There's more, but I'm not gonna copy all those stories.

I found AIG using a custom scan I built searching for names where IV30™ is up at least 10% today. The scan details are below with a snapshot if you want to build it yourself in Livevol Pro.

Custom Scan Details
Stock Price >= 10
Average Option Volume >= 1,200
Days After Earnings >= 5 and <= 60
IV30™ Percent Change >= 10%
IV30™ >= 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.

The AIG Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

IV30™: 40.20
HV20™: 28.19
HV180™: 47.43

We can see the IV30™ rising as the stock has popped on the news. Now the Skew Tab (below).

We can see a notable upside skew, especially in Dec to the OTM calls.  Finally, let's look to the Options Tab.

Possible Trades to Analyze
1. I'm not usually a premium buyer, but the Dec 46 straddle is priced at
~$2.45 fair value and the stock has moved $4.00 today alone. I dunno, feels like that straddle is kind of cheap.
Buy the Dec 46 straddle for $2.50.

2. Take a little of that premium off with an upside skew sale.
Trade #1 +
Sell the Dec 50 call @ $0.40. This reduces the net debit to $2.10.

3. Trade #2 and sell a put, like the Dec 43. But, I dunno if a $0.20 sale is worth it.

This is trade analysis, not a recommendation.

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