Trade of the Day: American International Group (AIG)

Ride the bull with AIG calls

   

In the insurance sector I see three really interesting names right now: Aetna (NYSE:AET), American International Group (NYSE:AIG) and Cigna (NYSE:CI). All of these names are liquid and volatile, making them ideal candidates for short-term trading or options trading.

Aetna has rallied way up from a downtrend to the $50 level, but then dropped from those higher prices to “fill” lower price areas. Currently it is trading around $48, and I see that $50 or $51 level as good candidates for an options strike price.

My Power Stocks system, which uses multiple regression analysis and other statistical tools to unearth the few stocks that are building momentum, has identified AIG and CI as very strong stocks to buy on further strength. And no wonder, if you look at the charts, both have been steadily trending up since the beginning of the year. However, not all strong stocks are great for options trading. The underlying stock of an option must be poised for a quick move just like all of my buy-rated stocks, but the option chain must also be liquid and inexpensive.

That’s why I’ve chosen AIG as the most lucrative of these three insurance stocks for options trading.

Recommendation: Buy AIG Apr. $39 call options at $1.18 or lower, when the stock price is around $37.80. After entry, take profits if the stock price hits $39.80 or the option price reaches $2.20. Exit if the stock price closes below $36.80 or the option price falls to 80 cents.

If possible pay less than the recommended value. By doing so you’ll save money and make more.

InvestorPlace advisor Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.  Try Maximum Options today for 2 months for only $99.


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