I'm Max Meyers, the senior producer of a new program called "Options Action," and if the rehearsals are any indication, I think you will find the show both fun and informative.
Options are a fast-growing but often overlooked investment tool. Used properly, they can not only help you manage risk, but also increase returns. Of course if they are misused, well, it can cost you.
Now you don't have to trade options to appreciate their value. Like other financial instruments, options can offer tremendous insight into potential future moves in stocks and other securities. We will highlight that information for you and present it in an actionable way, every Friday at 11:30 pm ET.
And with that, let's turn our attention to Wednesday's action.
One topic we have covered extensively during our rehearsals: Citigroup . The company continues to be mired in lousy headlines. And Wednesday its stock is down about 20% following Tuesday's after-hours announcement that it will combine its brokerage unit with Morgan Stanley's , a deal that has thus far, failed to impress some analysts. "The Smith Barney deal is actually a sale disguised as a joint venture," said David Trone, senior equity analyst over at Fox-Pitt Kelton. "Investors are realizing that the company is so desperate to offset ongoing hits to its capital that it must sell its most prized properties," Trone added. (Trone rates the company "in line").
The company moved its earnings up to Friday, but option activity Wednesday suggests some traders don't think the stock is going anywhere, anytime soon.
For example, Citigroup's March 2009 7.50 Calls were extraordinarily active today, with nearly 55,000 contracts having already traded hands as of 2pm, considerably more than that contract's open interest of 38,000.
At first glance that may seem like a bullish posture, but the devil is in the details.
According to my good friend Mike Khouw, who (when not masquerading as a future cable news star on "Option Action") runs Cantor Fitzgerald's U.S. Equity Derivatives Trading Desk, nearly 45,000 of those 55,000 Citi calls were executed on the bid, an indication that they were most likely sold, a bearish for bet (http://www.thinkorswim.com/tos/displayPage.tos?webpage=lessonCallsPuts) that indicates some option traders don't believe Citi's stock will not pass north of $7.50 before March.
"When you see this type of activity in options activity, it's usually a sign of fear," added Khouw.
For an update the Citi saga, be sure to tune into the "Option Action" premiere, this Friday at 11:30 pm ET.