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Can't Short AIG: Investors Turn To Options Instead

If investors could borrow enough AIG

shares to short the stock, they would.

Aig Headquarters
Aig Headquarters

But given that you can't borrow the stock at reasonable rates, many investors are making their bearish bets through the options market.

And they have good reason to do so.

Yesterday, CNBC's Kate Kelly reportedon The Strategy Session that some underwriters on the deal are pressing Treasury to price the re-IPO as low as $25 a share to attract investors. The additional supply is seen pressuring AIG's stock price even further.

That bearish posture has driven up demand for puts and made them expensive. Still, many investors are willing to buy puts to get short the name ahead of the massive secondary. For example, the 30-strike puts in August are currently fetching around $2.80, an investment that wouldn't be profitable unless AIG stock falls below $27.30 by August expiration.

"They don't think the offering is going to be good for shares," said Mike Khouw, an Options Action contributor.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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