American International Group (NYSE: AIG) shares are falling after Credit Suisse downgraded the stock to "Neutral" from "Outperform" on concerns of a limited upside. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AIG.After hitting a one-year high of $72.97 in May, the stock hit a one-year low of $38.50 in March. This morning, AIG opened at $47.05. So far today the stock has hit a low of $46.38 and a high of $47.49. As of 1:30, AIG is trading at $47.43, down 10 cents(-0.2%). The chart for AIG looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $55 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.3% return in seven weeks as long as AIG is below $55 at June expiration. AIG would have to rise by more than 16% before we would start to lose money. Learn more about this type of trade here.
AIG hasn't been above $55 since February and has shown resistance around $48 recently. This trade could be risky if the company's earnings (due out on 5/8) are a positive surprise, but even if that happens, this position could be protected by resistance AIG might find around $48, where it topped out earlier this month.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in AIG.
Starbucks: The next McDonald's
Wal-Mart's launch of $20 slimming jeans will be a huge success
Why I spent some of my stimulus check on GE
Reader Comments (Page 1 of 1)
4-29-2008 @ 1:00AM
Erikaduh said...
I hope this insurance company goes bankrupt. They are trying everything not to pay my claim. I have an attorney who is in the process of suing the hell out of them. AIG will remember this customer forever, as I promised them if they tried to play games on my claim. You made your bed now lay in it. Sincerely Gerald Vaughn your worst nightmare.
5-08-2008 @ 7:06PM
gerald vaughn said...
From Gerald Vaughn. "AIG won't soon forget me". Attention all investors, sell all your stock in
AIG. I'm one reason why their stock is down and if you think it's down now you have seen sh"t yet. I'm suing them for bad faith among other things. Attention all potential customers don't buy any product this lying, cheating, and worthless company tries to sell you. AIG can't even pay my small claim with out being sued. I will spend the rest of my 40 good years on earth making sure they lose as much business and stock value as possible. I told you Tim Fowler regional claims manager for AIG in Tempe,AZ( aka. lying, A-hole) that you tried to screw with the wrong A-hole. This is the worst insurance company I ever had the displeasure of being insured by. I will bring you down AIG.