So on Friday (Feb 22, 2008), I received an “alert” at around 9am from a member of “The Canadian Investment Club” recommending everyone to short ABK and/or MBI.. claiming that Standard & Poor’s will drop their AAA credit ratings on them. Well, later that afternoon (before the close), news came out that they don’t plan to. The stock soared from around 8.60 to 10.80 in about 30 minutes. This is what I said in response to the news (after the close):
Thanks for bringing ABK to my attention Jason. I’ll try and upload the Mar 10 calls candlestick px graph on my website by Tuesday morning. I hope you were stopped out in time or tracked the announcement today.. or maybe even reversed
For those who are still short: I did a quick TA and found that resistance is met at the $11.00 level. This is confirmed by the 20DMA, the mid-price line of the Jan 23 candlestick, and the descending trend line (made by the highs of Jan 24 and Feb 01). If it breaks through and closes above $11 on high volume, then it would be wise to cover (not necessarily go long).
**Just a note: I have absolutely nothing against the guy.
Moving on… the reason why I’m posting this so late is because my internet died on me and I’ve spent over an hour to try and fix it. Very annoying. My apologies to those who were counting on my charts earlier tonight. After news came out that S&P reaffirmed its AAA credit ratings for bond insurers Ambac Financial and MBIA the stocks soared. As I said on my post on Friday, “If [ABK] breaks through and closes above $11 on high volume, then it would be wise to cover.” Indeed, today it closed above $11 on high volume. Therefore, cover.
HERE ARE THE CHARTS:
Here is the underlying with Chaikin Oscillator clearly breaking through its previous high. Clearly above $11 on high volume. Clearly a signal to cover.
Here is the Mar08 10 Put Contract Historical from Bloomberg.
Here is the Mar08 10 Put Contract Intraday on Feb 25, 2008.
Quoted from Options Intelligence Report — “News emerged this afternoon that a consortium of leading banks has struck a deal to rescue municipal bond insurer Ambac, good news reinforced by S&P’s decision to maintain the Triple-A rating of both Ambac and MBIA. Shares in Ambac gained 14.6% on the development, closing at $12.28. Earlier today, option traders were positioning long volatility via the 10/12.50 strangle, paying a $3.15 premium – more than a quarter of the current share price – to profit from a break above $15.65 or below $6.85. The mood has now shifted to the upside, it seems, with traffic in the 12.50 calls picking up sharply this afternoon. Open interest in Ambac shows 1.5 calls open for every put.”
This play is dead and hopefully you will find the logic in you to cover your losses.
