A large trader apparently believes that MBIA is headed higher after the bond insurer's earnings beat forecasts.
OptionMonster's tracking systems detected the purchase of 18,000 January 10 calls for $0.55 and the sale of 10,000 January 5 puts for $0.90. The trade resulted in a total cost of $90,000 before fees and commissions, or just $0.05 per call contract purchased. Volume exceeded open interest in both strikes.
CNBC/OptionMonster Trading School:
It was the largest transaction on an individual stock to cross our screens Friday as of this writing.
The so-called risk-reversal strategy is an unhedged one-way bet on MBI shares moving higher. The trade would profit if the stock closes above $10.05 by expiration and would generate losses below $5. The investor apparently bought and sold different numbers of puts and calls to minimize the cash expense of the position.
More Investing Strategy:
MBI stock is down 2.1 percent in midday trading. The shares are up 43 percent this month as investors hunt for value among beaten-down stocks that would benefit from improved credit conditions. MBI's earnings report Wednesday evening provided some fuel to that thesis when it posted an estimated $1.1 billion of recoveries on some mortgages.
Overall options volume in MBI is four times average today.
David Russell is a reporter and writer for OptionMonster.