By David Russell
Today's call buying follows similar activity last week, which came amid vague speculation that the alternate-asset management company may be an acquisition target. Sentiment turned bullish in American Capital (ACAS) last week, and traders continue to expect gains.
optionMONSTER's Heat Seeker tracking system detected heavy call buying in the alternative-investment company, which owns stakes in smaller businesses in hope of bringing them public. Its portfolio includes financials, technology, industrials, plus the maker of Necco Wafers and Sweetheart Conversation Hearts.
The activity mainly focused on May 10 calls, which mostly traded for $0.40 to $0.42, and the April 10s, which fetched $0.13 to $0.18. More than 2,600 contracts traded in each strike, though volume was below open interest in both.
ACAS rose 0.96 percent to $9.45 in morning trading and is up 9 percent since mid-March when it bounced at its 50-day moving average. The call buying follows similar activity last week, which came amid vague speculation that the company may be an acquisition target.
Even if those rumors don't pan out, some value investors may find ACAS attractive because it's valued below book value. And, some of the companies it owns stakes may be worth even more than currently expected.
Like other alternate-asset managers including Blackstone and Fortress Investment, ACAS is highly leveraged to asset prices and conditions in the credit market. Given that it's still down more than 50 percent from mid-2008, some bulls may expect it to melt up as many other stocks have done since the market bottomed out two years ago.
Overall option volume in ACAS is more than twice the average level so far today, with calls outnumbering puts by 23 to 1, according to the Heat Seeker.