Why traders are selling puts in MGIC
Mike Yamamoto | [email protected]
Nearly 3,000 July 5 puts traded in a strong selling pattern yesterday, with most of the contracts going for $0.05, according to optionMONSTER's tracking systems. The volume was well above the strike's open interest of 1,824 contracts before the session began, indicating that this is new activity.
The put sellers will keep that $0.05 credit as profit if MTG is above $5 at expiration in mid-July. But if the stock is below that strike price, the traders will be on the hook to buy the shares at that level. (See our Education section)
MTG fell 1.4 percent yesterday to close at $6.35. Earlier in the session it was just a nickel away from a two-year high of $6.60 reached on May 17, but the shares fell with the rest of the market in the afternoon. Financial guarantors as a group are up more than 80 percent this year and still drawing bullish option activity, though they have leveled off in the last month, according to our researchLAB market-analysis service.