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MBIA: Inexhaustible Supply of Shares

|Includes: AMBC, MBIA Inc. (MBI)

Today MBIA (NYSE:MBI) was up as much at 25% on no news, options action was very heavy, volume greatly in excess of open interest on the Oct 8, 9, 10 and 11 strikes.

The amazing part was that 40 million shares changed hands.  Ownership has become progressively more concentrated between Warburg Pincus owning as much as they do and many value type mutual funds are holding large positions.  Even some hedge funds have been taking concentrated positions. 

At one time I used to think that with short interest at 29 million that a squeeze would result if and when the shares ever rallied.  But, clearly from today's action there is an inexhaustible supply here, anyone and everyone who is short can cover all at once any time they want to.

Maybe it's like a roller coaster and it has to be dragged up to the top of the ramp before it can make another run downhill.  

I have quite a few Oct 7 calls, part of my ongoing bullish reversal strategy.  I took some profits because they were there, but held on to most of it. That's the point, if this makes a really big move I am going to control enough shares to make a difference. 

Credit spreads on CMBS and RMBS have been falling lately, a sign that the market is beginning to think those situations may not be total losses.  Aaaaadjusted Book Value remains at 40.01 until we hear otherwise, and even shares of the literally worthless Ambac are rallying.