Synthetic Put Player Positions for New Highs in MBIA Shares

MBI – MBIA, Inc. – Bullish strategists bombarded MBI in the first half of the trading session with shares of the insurance company trading higher by 2.30% as of 12:05 pm ET to stand at $10.28. At least one options investor has initiated a synthetic put on the stock in order to position for MBI’s shares to explode to the upside by January 2011 expiration. It looks like the medium-term optimistic player sold a massive chunk of MBIA shares, roughly 573,000 of them, at approximately $10.03 apiece spread against the purchase of roughly 18,850 calls at the January 2011 $12.5 strike at a premium of $0.53 per contract. The synthetic put strategy positions the investor to make money if MBI’s shares shoot straight through $12.50 and the delta on the calls continues to climb by expiration day. This leveraged exposure to upside potential is provided by the long calls because those contracts will appreciate at a faster rate than the accrual of losses from the short stance in shares if the insurer’s share price rises significantly in the next four months. Additionally, the long calls help protect him from losses on the short position in shares while the price of the underlying appreciates toward the strike price of $12.50. If shares fail to rally and actually decline the trader may profit as the short shares become more profitable on the trek lower. Options implied volatility on MBIA, Inc. is up 4.5% at 59.07% as of 12:15 pm ET.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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