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August 1, 2013  Thu 10:06 AM CT

MBI: SEE CHART GET CHAIN FIND STRATEGIES
A large option trade in MBIA today sees limited upside in the mortgage insurer.

optionMONSTER systems show that a trader bought 8,992 August 17 calls for the ask price of $0.06 against open interest of 30,000. At the same time, he or she sold 10,000 September 16 calls for $0.25, below the listed bid price at the time. Open interest at that strike had been just 28 contrats, so that is a new opening position.

The trader appears to be rolling a short-call position to a lower strike and a later-dated contract. He or she is  buying back the August calls that have little value left and initiating a short-call position at the lower strike a month later. (See our Education section)

MBI is up 3.15 percent this morning to $13.93. It has been range-bound for the last two months after jumping from below $10 to above $16 in early May around its earnings report at that time. The next quarterly results are scheduled for Wednesday after the close.

More than 21,500 MBI options have changed hands this morning, already triple its daily average for the last month. 
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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