Bullish Move on Genworth Financial: Options
CHICAGO (
) -- At least one investor is calling limited downside in
Genworth Financial
(GNW) - Get Report
and expressing that bet by selling puts the same day Deutsche Securities upgraded the life insurance company.
Looking at the Oct. 11 puts in GNW, these options have traded more than 28,000 times so far on the day. One investor sold these options for approximately 43 cents with the stock trading at $13.19 a share. These puts closed up 10 cents on the day with a 22 delta, and are home to open interest of 999 contracts.
GNW shares, which closed down 22 cents on the day to $12.92, have seen a monster rally since their March lows of 84 cents. It looks like the investor is betting the stock will hold higher than $10.57, the break-even on this trade. This represents a drop of 18% from current levels. Implied volatility of these puts climbed to 95.9, and it looks like this investor is selling into a spike in implied volatility.
In addition to the put selling activity, another investor, or possibly the same one, bought Oct. 14 calls and contributed to the 3,500 contracts we've seen cross the tape so far today. These calls climbed five cents on the day, and are home to open interest of 2,700 contracts.
Since the delta of these calls is 44 cents, they should have only climbed less than three cents so far today. The presence of call buyers, however, is pushing up the price and implied volatility (implied volatility of the Oct. 14 calls is 86.3).
During pre-market trading, Deutsche Securities upgraded GNW to "buy" from "hold" and raised its target price to $18 from $7 after the company raised $600 million in equity capital. Additionally, on Tuesday, GNW priced its offering of 48 million shares at $11.75 each, which represents a 2% discount from its closing price that day (GNW shares closed at $12.05 on Tuesday).
Put selling like this is a sign of moderate bullishness, and could be an example of how risk aversion is abating in the market. A positive report from Deutsche Securities could have catalyzed the put selling we saw this morning. It's interesting that the investor may expect a drop of as much as $2.35 in the stock before it rallies. This is why we see it as bullish-to-neutral behavior, rather than an aggressively bullish strategy.
-- Written by Jud Pyle in Chicago
At the time of publication, Pyle did not have any positions in the stock mentioned. Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."
