Option Watch: June 23 Bears or Hedge Hogs in the Headlights at HIG?
June 23, 2009
While it can't yet be called "bargain-hunting", the market did stabilize on Tuesday following its worst one session decline in two months. With that same price shellacking in the broader market putting the once mighty green shoots rally firmly into corrective territory; many investors likely see value of both the technical and fundamental varieties taking shape. One spot that didn't appear to be the case was for option traders in Hartford Financial (HIG).
In Tuesday's session the multi-line insurer managed to tack on about 2.50% or a "nothing special" 0.27 cents to close at 11.25 on slightly below but still large volume of about 18.0M shares. At the same time, substantial put volume totaling somewhere between 50,000 to 62,000 contracts (depending on the vendor used) on the just out-of-money September 10 put was spied.
Additionally and per gratis info from OptionMonster, the action was determined the work of buyers with the bulk of the action on the offer side or asking price. From my own sleuthing, Tuesday's buyers do appear to be retail-oriented and "opening." Looking at the tale of the tape, hundreds upon hundreds of 100, 130 and other various decent but non-institutional sized prints all occurring for $1.50 were put up over a wide swath of time during the trading day.
The veritable buying frenzy was sufficient in boosting implieds on the session. The average ATM implied firmed by about 7 volatility points to about 92%. As for the day's most active, it saw buyers paying roughly 100% to 102% for the outright bearish bet. What hasn't been determined is whether the put purchase being put up was indeed, definitively, a bearish one.
Figure 1: Hartford Financial (HIG) IV / SV
With a delta of 31 and implieds firming but actually attractively priced relative to the shorter term 10 day and longer-term 90 SV readings and only moderately above the 20-Day SV -a long delta neutral straddle constructed with a purchase of stock might be considered a reasonable alternative position.
As there's still a solid and near 90 days left until expiration, theta isn't yet a concern. Further, the September option will be in the mix for a potential implieds "earnings rush" as that looming date is a bit more than one month away.
Figure 2: Illustrated HIG September 10 Synthetic Straddle
In building the case for the long volatility play, after attempting to go through some of the 18.0M shares traded and check for multiple and tightly placed prints representative of this type of spread combo play-I came up mostly empty handed. Indeed, by all outward appearances, I'd gander this type of "Buy, Buy, Buy!" was the work of a bearish and well-thought of newsletter writer.
Figure 3: Hartford (HIG) Daily Mixed Tea Leaves
Technically speaking and the observation from this option / market strategist sees the straddle as the more interesting play due to HIG's mixed tea leaves. For the bulls, which apparently now include Dr. Cramer last week, after a long five to six week and fairly steep retreat from its May highs, shares are setting up within a developing but deep W4 low.
Additionally, with a Doji Hammer finish on the session, appreciating a potential low in shares isn't lost on this technician. Further and supporting the bullish case, shares of HIG tested / breached slightly its 50% retracement off the March lows today.
On the other hand and for the bears, the current pullback is a steep one. Many Elliotticians like to see W4's develop more firmly and maintain the integrity of the preceding wave. This doesn't appear to be the situation in HIG.
Also a feather in the quiver for bears, HIG did recently lose its 50-Day support by a fairly wide margin. The favored institutional line should act as resistance. Ultimately, time will tell who the victor is, including the possibility of short premium traders cleaning up. That being said, bears or hedge hogs aren't looking like the financial road kill that bears the Hartford's corporate logo, just yet.
Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
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