Since AIG does not announce earnings this week, it appears that the one week options have come in considerably decayed. The October 37 strike puts have traded over 11,000 contracts today – the majority at a price of 10 cents. One dime!
Granted they are 7 dollars out of the money but are you telling me that AIG cannot move 15% in one week? It appears that because of this sale, the downside puts all are likely trading at a much lower volatility than they did last week. These option sellers may have short memories, but this stock was trading at under 20 dollars just 3 months ago.
Remember: there are always rewards and risks present when trading options. The risk to owning a one week option is 100% loss of premium paid, but the potential reward to owning a put is being able to limit the downside risk to a long stock position. The latter allows the holder to sell stock at strike if the shares should fall.
If you are short puts or long stock in AIG and are possibly nervous about the financial sector earnings announcements that begin this week, then from a risk management standpoint, you may consider hedging your position.
Photo by eflon
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Tags: AIG
