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June 5, 2012  Tue 2:32 AM CT

AGO: SEE CHART GET CHAIN FIND STRATEGIES
Shares of Assured Guaranty continue to slide, but a large trade is looking for a bounce in the mortgage insurer.

AGO has been falling since hitting a 52-week high of $19.04 in mid-March, closing above its 10-day moving average only once since then. The stock dropped another 4.2 percent to finish yesterday at $11.26, its lowest close since Dec. 2.
 
More than 67,000 AGO options traded on the day, compared to a daily average of 3,707. The volume was dominated by a single call spread, optionMONSTER's Heat Seeker shows.

A trader bought 20,000 July 14 calls through the middle of the day in large institution-size blocks, mostly for $0.28. At corresponding times 40,000 July 18 calls were sold for $0.03. The volume at each strike was more than the previous open interest, indicating that this is a new call ratio spread.

The spread takes a maximum profit if AGO is just at or below $18 at expiration. The trader risks only $0.22 if shares remain below $14, but he or she would be effectively short shares above $18. (See our Education section)
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Real vs. Synthetic

We now know that there are two ways of creating a call position, a put position, and a stock position. We can simply use the actual real security or we can recreate it synthetically. We can create these positions in both long and short forms and this ability sets up an interesting scenario--an arbitrage!

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