Barron’s The Striking Price highlights that AIG shares’ massive volatility is partly due to the fact that it is extremely difficult for anyone to short AIG shares right now.
For AIG option traders, high volatility can be a friend since it juices options premiums.
Thus the wild words of CEO Benmosche aren’t too bad actually.
Barrons: AIG’s implied volatility is still high and reflects the fact that the stock is all but impossible to sell short. This is why the stock moves all over the place, and why implied volatility always seems higher than warranted by whatever passes for fundamentals at the mega-insurer.
Many investors have, however, bought the stock because the shares are spring-loaded and typically move more in a day more than the stock market. For the last three months, the stock’s implied volatility priced an average daily move of about 12%.
Anyone who owns AIG stock, and is comfortable with very aggressive, speculative trading strategies, can consider selling a January $43 call and January $33 put to “strangle” AIG’s stock that recently traded at about $36.
The author owns shares of AIG.