LFG Options Suggest Earnings Surprise

LandAmerica Financial Group (LFG) shares jumped higher Tuesday after falling sharply during the last few trading sessions. Options on the insurance company were particularly active on Monday with 3,186 option contracts changing hands, which is 14x the average daily trading volume of 235 option contracts. The 20 August ‘08 options were the most active with 2,665 in open interest. This volume suggests that many investors are betting on positive earnings after the close Tuesday.

The S&P recently put LandAmerica’s ratings on negative watch following the announcement of unfavorable operating results by its peers and news on macroeconomic factors that affect title insurers, such as mortgage originations. The ratings agency reiterated its belief that the environment for title insurers would remain challenging until 2010 because of declining mortgage originations and rising claim rates that are huting the entire housing sector.

Despite the negative performance of its peers and weak macroeconomic environment, many investors appear to be bullish on the stock’s upcoming earnings announcement. Some experts believe that the stock has been driven down too far to justify and that any reasonable earnings number could send shares dramatically higher. For many options holders, the news will have to send shares past $20.60 in order to turn a profit on their positions.

LandAmerica Financial Group’s products and services facilitate the purchase, sale, transfer, and financial of residential and commercial real estate. The company operates through approximately 700 offices and a network of more than 10,000 active agents, and conducts business in Mexico, Canada, the Caribbean, Latin America, Europe and Asia. The bearish market for real estate companies has pushed shares from a 52-week high of $79.89 to a low of $14.75 per share.

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