Implied volatility in American International Group (AIG, news, chart, volatility) was off the charts Monday. Shares sank $7.38 to $4.76 after the Federal Reserve asked Goldman Sachs (GS) and JP Morgan to lend the company $70 to $75 billion, according to the Wall Street Journal, citing people familiar to the situation. AIG shares were battered last week and again Monday morning amid ongoing worries about its exposure to derivative securities and the risk of credit rating downgrades. Monday’s news did little to assuage those fears and, at the closing bell, AIG was down 61 percent. In the options market, volume rose to five times the usual, with 469,000 AIG puts and 369,000 calls trading on the day. The September 5 puts were the most actives. 81,400 traded on the session. These options have only four days of life remaining and hit a high of $2.61 a contract. At the end of trading, the September 5 put was trading for $1.65, giving it implied volatility in excess of 700 percent, roughly 20 times the implied volatility of AIG options one year ago.
About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.