Hartford Financial Options (HIG): Unusual Trading Activity
Options in insurance and banking company Hartford Financial (HIG) showed a large amount of trading activity just before the market’s close yesterday.
The broad market is down slightly this morning, but investors were treated to some good economic news. Labor costs and productivity both came in better than expectations.
The figures indicate American businesses are cutting costs and improving efficiency. Important moves that should help boost corporate profits down the road.
So, it’s not surprising that our tracking system is showing continued put selling in what has become a fairly stable name.
However, HIG has been trading in a sideways range between $16 and $17.20 a share over the last few months. And with earnings season winding down, there’s no reason to think this stock will make any large moves for a while.
So, what’s the big trade?
Option volume in HIG surged yesterday to a total of 25,000 contracts trading hands. That’s compared to the normal volume of 6,000 contracts on this name.
Our tracking system picked up one trader making a large bet that Hartford Financial is going to move higher over the next several weeks.
Right before the close yesterday, a single trader came in and sold 5,000 put contracts on HIG. He sold the HIG September $19 strike put options at an average price of $1.85.
Total proceeds from the sale were $925,000. This is a hefty sum which this trader will happily put in his pocket as long as HIG moves and stays above $19 a share by September expiration.
Let’s remember… when selling puts, the maximum profit is the cash collected on the trade as long as it’s above the strike price at expiration.
And in this case, it’s not a bad potential pay-off!
So, the question is, why so much enthusiasm around this name?
For those of you who don’t know, Hartford offers a diverse range of property-casualty, life insurance, annuity, and mutual fund services. These products are distributed via financial institutions, direct internet sales, and a network of more than 11,000 independent agents.
But that’s not all… This company also has a lot of other good things going for them.
For one, HIG has fully repaid the Treasury for its TARP investment. So the company is now free of the government’s investment in the form of preferred shares.
In addition, Hartford is well diversified across product offerings and geography. This provides the company with significant cross-selling opportunities and partially isolates it from slowdowns in particular areas of its business.
Finally, HIG’s strong partnership with the AARP provides them with a captive customer base. As baby boomers retire, they will require more of Hartford’s products and services.
I think between the current stock market momentum and the good things HIG has going for them, this is exactly what options traders are betting on.
It’s obvious this trader believes this will play out in his favor, what do you think?
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
