[Opening Spread on Mbia, Inc (MBI)]
Dear Member:
Rumors have been circulating that Warren Buffett may be looking at a deal with Mbia (MBI), the embattled bond insurer, and that along with the sharp drop in the stock price preceding the rumors has led to very high volatility and high option pricing. Once the rumor is over and whatever the news may be comes out, I would expect volatility to drop. I am placing an order to open a bullish put spread, simultaneously selling the Feb 10 puts (MBINB) and buying the Feb 7.50 puts for a credit with a limit of $0.70. Since this is only a $2.50 spread and I expect to take in 70 cents, my risk is only $1.80 a share plus the commission and the potential return on risk is 38.8% with expiration only 36 days away.
DISCLOSURE: At the time of publication, I have no position in the referenced options or the underlying stock.
Sincerely,
Bill Kraft
|
