Option Trade 
American International Group Inc (NYSE:AIG) Puts 
Monday, April 06, 2015

**OPTION TRADE: Buy the AIG May 2015 52.500 put (AIG150515P00052500) at or under $0.55, good for the day. Do not place a protective stop loss but a pre-determined sell at $1.00.

by Ian Harvey

April 06, 2015


American International Group Inc (NYSE: AIG), a global insurance company, cannot seem to get a break.

AIG last month won approval of the settlement with investors over claims the company had misled them about risks tied to the subprime mortgages. It was one of the biggest investor recoveries stemming from the 2008 financial crisis.

Now Pacific Investment Management Co. (PIMCO) has accused American International Group Inc. of misleading investors about “colossal” losing bets on unregulated credit-default swaps and subprime debt before the 2008 financial crisis.

Pimco seeks to hold AIG accountable for tens of billions of dollars in shares and bonds that were wiped out because of the insurer’s exposure to the swaps and residential mortgage-backed securities. AIG falsely claimed its exposure was remote even in a severe situation, Pimco said in a complaint filed March 27 in state court in Santa Ana, California.

The case was filed by Pimco after it declined to join in a $970.5 million settlement along with other investors.

Sixty-three Pimco investment funds seek damages from AIG under U.S. securities law for stocks and bonds they bought from Oct. 18, 2006, to May 12, 2008. They allege AIG’s offering documents for the securities either misstated or left out crucial information.

Added to the above drama, there has been a considerable outflow of money from AIG stock -- with $-20.58 million after subtraction of $39.26 million inflow or tick-up from outflow or tick-down of $59.84 million. To measure price trends, in last five days it provided -1.42% as rate of return while so far in this year price moved down -2.42%.

According to Fairholme's portfolio breakdown in the latest annual report, Bruce Berkowitz sold a large proportion of his shares in American International Group.

Also, shares of the insurance company have repeatedly failed to break the very strong resistance level at $56. In fact, AIG has now retreated three times from this resistance level since September 2014. AIG's failure to break through this important resistance zone is concerning and suggests that upside potential, at least in the short-term, is limited, and now, combine this with the Monday after Easter and Friday’s job report, it is extremely likely that AIG stock will spiral downwards and fulfill this options trade.

Technical Details

American International Group has a 52 week low of $48.56 and a 52 week high of $56.79. The stock has a 50-day moving average of $54.00 and a 200-day moving average of $53.00.

The company has a market cap of $74.15 billion and a price-to-earnings ratio of 10.38.


American International Group last released its earnings data on Thursday, February 12th. The company reported $0.97 EPS for the quarter, missing the Thomson Reuters consensus estimate of $1.07 by $0.10. The company had revenue of $5.21 billion for the quarter, compared to the consensus estimate of $8.68 billion.

During the same quarter in the prior year, the company posted $1.15 earnings per share. The company’s quarterly revenue was down 1.8% on a year-over-year basis. Analysts expect that American International Group will post $4.94 EPS for the current fiscal year.

Analysts Opinions

American International Group has earned a “BBB+” credit rating from analysts at Morningstar. The firm’s “BBB+” rating indicates that the company is a moderate default risk. They also gave their stock a four star rating.

Zacks restated their hold rating on shares of American International Group in a report issued on Thursday, March 26th. They currently have a $57.00 target price on the stock.

Zacks’ analyst wrote, “AIG’s fourth-quarter earnings lagged theZacks Consensus Estimate and the year-ago figure. A weak top line and higher benefit expenses more than offset the fall in operating and interest expenses, also leading to lower ROE. Lower catastrophe losses and improved underwriting favored P&C segment, although lower investment income and premiums hampered life and retirement operations…… intense competition, litigation damages, volatility in interest rates and currency pose financial and operating risks….”

The company has also been the subject of a number of other research reports:-

• Analysts at TheStreet downgraded shares of American International Group from a “buy” rating to a “hold” rating in a research note on Monday, March 16th.

• Analysts at Barclays set a $61.00 price target on shares of American International Group and gave the company a “buy” rating in a research note on Friday, February 13th.

• Finally, analysts at Deutsche Bank set a $61.00 price target on shares of American International Group and gave the company a “buy” rating in a research note on Monday, February 9th.

Seven investment analysts have rated the stock with a hold rating and eight have given a buy rating to the company. American International Group presently has an average rating of “Buy” and a consensus target price of $60.92.


AIG lacks the power to crush through the crucial resistance level at $56. AIG has now failed three times since September 2014 to break through this level.

Combine this fact with those discussed above, where a major stock buyback is unlikely -- investors will likely have to wait for better property and casualty insurance results to breathe some life into AIG's shares, which is not on the near-horizon – a downward movement is very possible on the cards which will benefit this put option trade.

Therefore, based on the facts above the following options trade is recommended…..

**OPTION TRADE: Buy the AIG May 2015 52.500 put (AIG150515P00052500) at or under $0.55, good for the day. Do not place a protective stop loss but a pre-determined sell at $1.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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