American Capital LTD (ACAS)

[Taurus]

Bulls charge into American Capital

ACAS 9.47 +0.06
David Russell ([e-mail]), On Thursday February 17, 2011, 1:14 am EST

American Capital gapped higher on a strong earnings report yesterday, and the bulls are looking for more gains.

optionMONSTER's Heat Seeker tracking system detected a surge of call activity in the investment company, which is still down about 80 percent from its 2007 peak. The August 10s were the busiest contracts, trading more than 5,600 times against open interest of 2,415. Most of the large blocks priced for $0.66 to $0.72.

There was also noteworthy buying in the March 10 calls and the May 10 calls.

ACAS rose 7.91 percent to $9.41 yesterday, its highest price since November 2008.

The company, which makes private-equity investments and leveraged loans, reported fourth-quarter profit of $0.19 a share to beat the $0.17 estimate. Management also said its assets should recover in value as the credit market and economy continue to improve.

The good news comes about seven months after ACAS said it was in danger of bankruptcy. Billionaire investor John Paulson, who famously shorted mortgages during the financial panic, owns more than 10 percent of the company.

Overall option volume was 10 times greater than average, with calls accounting for a bullish 87 percent of the activity, according to the Heat Seeker.


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