Early indications point to a steady open on Wall Street Monday on news the government is planning to increase its stake in Citigroup (C), but not fully take over the bank. The news seems to be easing recent worry about possible nationalization of financial institutions, which sent shares of both BofA (BAC) and Citi reeling last week.
Less than an hour before the opening bell on Wall Street, stock index futures suggest that the Dow Jones Industrial Average might gain 50 or 60 points in early trading. The NASDAQ is indicated 10 to 15 points higher.
Citi shares gained nearly 40 percent after the Wall Street Journal reported that the government might take a 25 to 40 percent stake in the embattled financial institution. Meanwhile, BofA rose 7 percent after CEO Ken Lewis said over the weekend that there is no reason the bank should be considered for nationalization.
With no economic data due out until reports on home prices and consumer confidence Tuesday morning, there isn't a lot of other news to guide the market action Monday morning.
Bonds are seeing losses on the government rescue news. The benchmark ten-year Treasury lost 18/32nd and its yield rose to 2.86 percent.
The buck rallied 1.33 to 94.65 against the Japanese yen. The euro edged back down to 1.279 on the buck.
Crude oil edged up 17 cents to $40.20 and gold is down $16.30 to $985.9 an ounce.
In the options market, trading was active Friday due to the expiration and the tone was cautious as the Dow Jones Industrial Average lost 100 points to a new 6-year low. The CBOE Volatility Index (.VIX) rose 2.22 to 43.90. Approximately 9.5 million calls and 10.4 million puts traded across the exchanges.
Ebay (EBAY) edged up 2 cents to $12.18 Friday and open interest in January 2011 calls at the $17.5 strike increased by 31,000. The activity included two blocks of 10,000 contracts (20,000 total) hitting on the bid-side for $1.50 and coincided with a block of 1.2 million Ebay shares that traded for $12.10. Looks like buy-write strategies on Ebay. Assuming 1 call sold for every 100 shares, selling calls lowers the cost basis of owning Ebay to $10.60 and leaves 65 percent upside (17.5) through the Jan 2011 options expiration.
Bullish trading was also seen in KB Homes (KBH), Tivo (TIVO), and Coca Cola (KO).
Moody's (MCO) saw bearish order flow. Shares sank $2.55 to $19.16 and 37,000 puts traded on the credit rating company, or about 3 times the number of calls. March 20, March 17.5, and May 20 puts saw increasing open interest, as some investors appeared to be taking new positions on concerns about further losses in Moody's. No news on the day.
Bearish trading was also seen in McGraw Hills (MHP), Kohl's (KSS), and Monster Worldwide (MWW).
Frederic Ruffy
WhatsTrading.com
