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By David Russell

MGIC Investment (NYSE:MTG) has been posting incrementally higher lows for 10 months, and now the bulls are looking for a breakout.

MTG Chart

optionMONSTER's Heat Seeker tracking program detected heavy call buying in the heavily shorted mortgage guarantor. The June 10 calls were the most active strike, trading 11,519 contracts for $0.39 to $0.60. The September 12.50 calls changed hands 10,000 times for $0.45 to $0.55. Volume was more than nine times open interest in both strikes.

MTG rose 5.75 percent to $6.81 yesterday and is up 73 percent in the last three months. The shares have been pushing higher despite mounting delinquencies and worse-than-expected results the last time earnings were released on Jan. 26.

Short interest represented a substantial 19 percent of the float as of Jan. 15, so forced purchases are probably helping push the stock higher. Yesterday's call buyers may have bet against MTG and are looking to hedge against a potential breakout.

The stock needs to rise 54 percent by expiration for the June options to turn a profit, while the September contracts require a 91 percent rally.

Overall options volume in MTG was 12 times greater than average. Calls outnumbered puts by 59 to 1.

(Chart courtesy of tradeMONSTER)

Source: Positioning for MGIC Breakout