Banking & Finance

Options Trading & Expiration Stack Up On Citigroup (C)

Pandit Citi ImageCitigroup Inc. (NYSE: C) has been one of the most active stocks on the NYSE for weeks and weeks now.  Despite low price stocks usually not being strong in options trading volume, that has not been the case at all in Citigroup.  The options trading volume is swarmed every day with a flood of options trading.  Ditto for Citigroup shares.  It is said that stocks with highly active volume and high options volume gravitate toward the closest strike price on options expiration date.  If that holds true today, then Citi is going to get pulled down in the afternoon.

While this ‘theory’ is frequently disproved or shown with exception, many do put a lot of faith in it.  In some sort of comparison it is almsot similat to buying and selling action seen on stocks who are being added into or kicked out of a key index like the S&P500.  Today is quadruple-witching day and we wanted to high light the open interest.  Only the in-the-money options matter at this point with only the afternoon session left before these contracts all expire.  Here is the data for the September-2009 high open interest to demonstrate this:
CALL$    Volume    Op.Int.
3.00    3,372    662,562
4.00    21,568    486,815
5.00    1,423    1,414,543
6.00    20    309,179
PUT$    Volume    Op.Int.
2.00    1,900    558,271
3.00    200    691,650
4.00    822    491,396
5.00    12,944    793,215

This is significantly higher than the open interest in the OCT-2009 CALLS and even significantly higher than the JAN-2010 CALLS.  There of course also exits the notion that each dollar is so far apart here.  We usually try to assume that these expiration events are known and factored in ahead of time, but we would not be surprised at all if there was a significant bump up in share volume and options volume as traders exit and roll into positions for next month.

Throw in an S&P re-weighting wild card, and this could make today’s trading even more crazy.  Citi shares are down about 1% at $4.39 on over 400 million shares.  That SEPT-2009 $5 CALL on a fully leveraged basis represents a whopping 141 million shares alone on a fully leveraged basis.

Jon C. Ogg
September 18, 2009