Volume Spike Investor

Ambac Financial Group, Inc. (NYSE: ABK) is a wonder of a stock with percentage price swings now looking wider than predicting this year’s Super Bowl winner.  At 2:18 PM EST we have seen 44 million shares trade hands and shares are up 11% at $2.36.  This is triple normal trading vol;ume levels, but the low share price has allowed that number to trade above average volume for 8 days in a row.  Shares have literally doubled since last week.

But something else stands out here.  Traders are starting to switch over to options trading on what looks like de-leveraged trade.  Instead of buying 100 shares, you can buy 1 options contract and you know exactly what your downside is.  Here you will see that the CALL options are starting to pick up in volume with the open interest levels before today:

Option/Strike        Volume    OpInt
JUL08 $2.50 CALL    9,147    30,815
AUG08 $2.50 CALL   2,200    8,774
AUG08 $5.00 CALL   2,501    8,722
JAN09 $2.50 CALL    7,193    8,360
JAN09 $5.00 CALL    20,297  12,011
JAN09 $7.50 CALL    1,714    19,457

That is over 40,000 contracts traded in call options.  While the swings here may be too big for many of these to become profitable, traders on a de-leveraged basis at least know what their downside risk is if this one implodes.  When stocks go from $80.00 to $1.00, that becomes all too much a real possibility.

Jon Ogg
July 9, 2008