Yesterday option traders bet that AIG would bounce, and today they were proven right.
In the final hour of yesterday’s session, Investitute’s market scanners found that 7,900 Weekly $59 calls that expire on Sept. 22 were purchased for $0.35 to $0.48 with shares at $58.27. These were clearly new positions, as open interest in the strike was a mere 6 contracts before trades occurred.
Today those calls sold for $1.35, more than tripling in value less than 24 hours later. The stock was up less than 3 percent at the same time, showing how quickly options can far outpace gains in their underlying shares.
Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.
AIG rose 2.59 percent to $59.78 today. The company rebounded along with other insurers after enduring losses attributed to Hurricane Harvey.