Yesterday, the OptionsHouse Hotlist picked up huge action in the American International Group (AIG $26.92 +3.78). This stock rocketed more than 16% after the company stated it is in talks to sell assets; possibly to pay back a portion of its debt to the government. This initially sent shares only slightly higher. However, the buying intensified throughout the session, and looks to me like a classic short squeeze.
Today, traders grabbed 85K calls of the 136K contracts traded, which is 6 times the daily average in this stock! The implied volatility in here spiked higher with the gain in the shares as well. 9,000 of the February 30 calls were traded, equaling the open interest in this line. This activity may indicate further immediate upside in the share price is expected among traders.
The risk to a long call is 100% of the premium paid, while the reward is theoretically unlimited beyond strike.
AIG deserves a spot on most traders’ watch lists the next several days!
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Tags: AIG, Short Squeeze
