Monday, December 20, 2010

MGIC (MTG) - Call Bonanza in Mortgage Insurer

MTG is trading $10.00, down small with IV30™ up 2.6%. The LIVEVOL™ Pro Summary is below.

MTG is a holding company. Through its wholly owned subsidiaries, the Company provides private mortgage insurance in the United States.

The company has traded over 61,600 contracts in an hour on total daily average option volume of just 5,634. Over 61,500 calls have traded yielding a 317:1 call:put ratio. 60,000 calls traded in a single trade:

Buy 20,000 2012 Jan 20 calls paid $0.32
Sold 15,000 March 9 calls @ $1.56
Buy 25,000 Feb 10 calls paid $0.92

Color from Mike Bristow of the Vtrader Group. But this trade is more interesting than it looks on the surface. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that:
Feb 10 calls calls are entirely opening (compare OI to trade size).
Jan'12 20 calls are mostly opening (compare OI to trade size).
Mar 9 calls are ambiguous as Trade volume = OI.

I did a little hunting and found that the Mar 9 call interest opened on 11-15-2010 and it was a purchase for ~ $1.05. That means the sale today was a close of a long position that won ~$0.50 15,000x or $750,000. So it's a $750,000 win with another purchase for $2.94 million in the other calls.

Take it a step further, we can see the Jan 12.5 calls have 25,000+ OI as well. As far as I can tell, that is long interest (on 11-5-2010 about 13,000 were purchased for ~$1.68).

So the position now is:
Long 20,000 Jan'12 20 calls
Long 25,000 Feb 10 calls
Long 25,000 Jan'12 12.5 calls


The Skew Tab snap (below) illustrates the vols by strike by month.

I've circled the strikes that traded today. The skew actually look pretty normal, which is weird to me.

Finally, the Charts Tab (12 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see MTG was as high as $13.80 on 4-16-2010, then fell off substantially on earnings.

This is trade analysis, not a recommendation.

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