Personal Spending Strengthens the Market and Heavy Options Activity in Citigroup (C) and MEMC Electronic Materials (WFR)
The markets are looking fairly strong this morning after data showed consumer spending of personal income was basically flat compared to the prior month. This, in addition to a slower savings rate among Americans and a flattish reading on inflation, seems to be having a soothing effect on the market.
Personal spending did increase slightly by .3%, and consumer spending comprises about 70% of overall demand in the U.S. economy.
Over the past couple days; a morning rally followed by profit taking in the afternoon has been par for the course. Some say this is indicative of an impending sell-off, as short-term traders are unwilling to hold positions overnight. We will see if this theory holds true.
Monday Morning Options Action
The U.S. treasury announced it will be selling its $7.7 billion common-stock stake in Citigroup (C) over the course of the year with the help of Morgan Stanley, C shares are off 2.7% to $4.18. The options volume is extremely heavy in Citigroup today, but this is not uncommon for the stock.
Other heavy options volume was focused in MEMC Electronic Materials (WFR), where we saw the May 15 – April 14 call spread being bought 4500 times for .05. This could be a trader rolling his long-call position from April to May, but this is only speculation.
I mention this speculation in WFR because, back on 3/25/10, there was a large percentage of calls traded versus puts, more than 8 to 1. Earnings announcements are expected on 4/22/2010 with a consensus estimate of $0.05 per share.
It can often be a puzzle trying to figure out the impetus for a certain trade when evaluating large options volume; things are not always as they seem. This means that just because there are large amounts of calls being bought, traders may not be making straight bullish bets. They may have an underlying short stock position or short delta from another options position.
As for WFR, we are not seeing any major news today and the stock is currently down $.03 to $14.65 (price as of midday Monday).
Remember there are a couple hours left in the trading day and the volume of these issues may continue to rise, but this is where we are seeing some heavy options activity today. Also remember that options can be bought or sold and volume does not indicate which.
These are a few of my team’s observations this morning. If you have others you would like to add to this list, please feel free to add them in the comments.
Photo Credit: Steve Wampler
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