Bulls double their money in MBIA

MBIA has rallied amid takeover speculation, resulting in significant gains for upside option positions.

On June 28, Investitute’s market scanners identified the purchase of 5,131 July $9.50 calls for $0.32 as part of a bullish roll with shares at $9.27. This was clearly a new position, as open interest in the strike was a mere 15 contracts before the trade occurred.

Those calls ended today’s session marked at $0.67, more than doubling in value. The stock rose just 6.8 percent in the same period, showing how options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

MBIA was up 3.45 percent to $9.90 today. Analysts have discussed a possible sale of the bond insurer, which told investors late yesterday that it is now” unshackled from most of the limitations imposed by the rating agencies” after the company’s credit rating was downgraded last month.