Allstate (P/C Chart, news, volatility) is down 73 cents to $20.94 and hit session lows of $20.39 after Barclay’s analysts said the company might need to raise capital and Fitch downgraded ALL’s debt rating. Large blocks of ALL calls also traded. Part of the action invovled a three way-trade where a firm bought 10,000 Feb 32.5 calls, sold 10,000 Feb 25 calls, and sold 10,000 Mar 25 calls. The action in the 32.5s looks to be either a hedge or a closing trade. The other two look like opening call writes, perhaps against shares and or perhaps on the view $25 by March expiration is becoming less likely. Another 6,935 Feb 35 calls traded offferside fer four pennies about 11 min. before the three-way trade. Looks closing.
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2 users commented on " Allstate Corporation (ALL) $20.93 -3.41% "
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The downgrade is related to a default in catastrophe bonds underwritten by an ALL subsidiary and linked to Lehman.
See:http://www.bloomberg.com/apps/news?pid=20601087&sid=axqKDgZQGags
Bloomberg quotes Allstate and says:
” Maryellen Thielen, a spokeswoman for Allstate [said:] “The default of Willow Re does not create any contractual obligations for Allstate.†”
And: “The defaulted bond accounts for less than 5 percent of Allstate’s overall reinsurance program, Thielen said.”
We will know for sure tomorrow, but I looked at the volume and open interest and it seems to me that All 32.5C might have been sold and 25C bought in anticipation of a rebound, given the facts from Bloomberg.
Since I can’t see the trade (bidside? askside?) I can only guess.
Any opinion?
Thanks for the link.
I updated with a graphic breaking down all the trades (click on it to make it bigger), but the bulk of the action was as described in the original post “firm bought 10,000 Feb 32.5 calls, sold 10,000 Feb 25 calls, and sold 10,000 Mar 25 calls.” Looks like the 25s were opening and the rest closing. So, short calls at the $25 strike. It might be against a position in shares.