By Jud Pyle, CFA, chief investment strategist for the Options News Network
are less than $2 shy of their 52-week high after rallying up from their March 2009 lows of sub-$13 a share. At least one investor is hopping on the bullish bandwagon and calling for even more upside in the life insurance company.
Looking at the June 45 and 47 calls, we see that more than 8,000 of each of these options have changed hands so far today. What is notable about this activity is that both options were purchased. This is not a spread where one was bought and the other sold. This demand for options is serving to push up the overall implied volatilities of June options.
As of 3:20 EST, the June 45 calls were trading up 20 cents on the day to $2.96, and have a delta of approximately 60. That means for every dollar move in the underlying stock, the calls should move by 60 cents. Around this same time, MET shares were trading up 20 cents to $45.78.
The calls should have risen roughly 12 cents, but the buying pressure is causing implied volatility to increase, and the calls to rally more than the delta would predict. The June 47 calls have a delta of 45, and their increase from $1.77 to $1.90 is also more than the delta would predict. The June 45 calls currently have an implied volatility of roughly 38%, while the June 47 line is close to 37%. The shares have had a realized volatility of roughly 29% for the past three months.
MET released its most recent quarterly earnings report on April 29, after the close. The company reported results of $1.01 per share, compared to analysts' expectations of 97 cents. On Friday, the day after results were announced, the stock was basically unchanged on the day. If this investor bought these options to open (we will find out tomorrow if the open interest increases), he or she could be betting that with a price-to-earnings ratio of less than nine times estimated earnings, MET could be due for a rally after those positive earnings results.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
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."