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December 13, 2013  Fri 10:10 AM CT

AGO: SEE CHART GET CHAIN FIND STRATEGIES
A large trader is combining stock and options in a strategy that is looking for higher volatility in Assured Guaranty.

More than 15,000 AGO options changed hands this morning, 3 times its daily average for the last month, and the activity was dominated by a single print. optionMONSTER's Depth Charge system shows that a trader bought 10,000 April 19 puts for the ask price of $0.91 in volume that dwarfed the previous open interest was 364, clearly indicating that this is a new position.

About a minute later, a block of 230,000 AGO shares was purchased for $22.24. That position size would exactly offset the delta of the options, creating an overall neutral position that could profit if shares move up or down as long as there is more volatility. (See our Education section)

AGO is down a penny to $22.07 this morning. The bond-insurance company was at a multi-year high of $24.81 last week.
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Education & Strategy

The sweet spot

When using the Stock Replacement Strategy, we must remember that in reality, we are doing a STOCK trade. We are just using options. We are replacing the stock position with an option position (long calls).

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