12:45 pm (EST)
Wow. I knew last night/ this morning when I was writing the American International Group (AIG, $48.19, up $10.50) blog, I was thinking to myself… “this thing really could hit $50.” Folks, there are no shares to short and the only play has been long for the past few weeks. From 3:30am this morning:
“If AIG continues to shoot to the moon then the calls will continue to go higher and they could triple again if AIG goes to $50. They would be worth $15.”
AIG has hit $50 today and is currently up 30%. The call options I’m talking about are the September 35 calls (IKGII, $15.00, up $9.55) which closed yesterday at $5.45. As Biggie Smalls would say..”It Was All a Dream”…but this dream has come true. Bam, The September 35’s are right at $15, up 175%. Folks, they opened at $7.50 and have doubled.
Of course, the September 25 puts (AIGUY, $0.40, down $0.16) are trading lower BUT look at how much value they have despite the $10 pop in AIG.
The real story here is this. Remember, AIG did a 20-to-1 REVERSE stock split when the shares were at $1 so really shares are back up to $2.50. There is buzz that this thing could go to $100. In reality, that would get the stock back to $5 if the split wasn’t done.
I told you there were a lot of ways to play this stock and if you are in the September 35’s, you can sell now and lock in a 200% gain from the strangle trade or you can place a stop around $12 if you want to see if AIG continues to run.
For those who were thinking outside the box this morning when the opening bell rang…
The September 50 calls (IKGIX, $6.45, up $5.32) are up an astounding 470%. The calls opened at $1.65. So what does this mean? Well, if you would have bought 10 contracts this morning for $1,650 you would be looking at a profit of $4,800.
Now, the reason the put options haven’t dropped to zero is because options traders are selling a lot of the September 50 calls because there is no stock to short. Continue to hold the September 25 puts and make sure to set a stop on the calls.