Bulls Look for Pop in Assured Guaranty

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- Investors are positioning for a rally in Assured Guaranty ( AGO), which trades for barely half its book value.

OptionMonster's tracking systems detected the purchase of about 8,000 December 14 calls for 87 cents and the sale of an equal number of December 17 calls for 22 cents. Volume was more than triple open interest at both strikes, which means that new positions were initiated.

Those investors now have the right to buy AGO for $14 and have agreed to sell it for $17 if it closes above that level six weeks from now. They paid 65 cents to control this call spread and will collect $3 if it goes to $17--a profit of about 362% from a 30% move in the stock, which shows the kind of leverage you get from trading options.

Assured Guaranty's shares fell 2.03% to $13.01 Tuesday. The company provides credit-protection products to financial markets in the United States, Europe, and Australia.

Almost 20,000 contracts traded in the name Tuesday, compared with 4,700 in a normal session. Calls outnumbered puts by 6 to 1, reflecting the bullish sentiment.

Najarian has no positions in AGO.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

More from Options

Amazon's Stock Is Facing a Major Test

Amazon's Stock Is Facing a Major Test

Here's a Better Way to Hedge Using Stock Options

Here's a Better Way to Hedge Using Stock Options

Let the Najarian Brothers Crash-Proof Your Portfolio

Let the Najarian Brothers Crash-Proof Your Portfolio

Let the Najarian Brothers Help You Generate Income With Options

Let the Najarian Brothers Help You Generate Income With Options

Learn Options Trading from the Najarian Brothers, the Best in the Business

Learn Options Trading from the Najarian Brothers, the Best in the Business