Don't Be Fooled by Calls in AvalonBay

Financial stocks got a lot of press in 2008, and rightly so. The meltdown impacting the economy is hitting the financial stocks hard. Real estate investment trusts, or REITs, have also been pounded, as it is real estate that helped bring us to our knees.

But Tuesday we saw some call activity in AvalonBay Communities (AVB Quote) that on the surface looked bullish, but in actuality was nothing more than an arbitrage opportunity and not a sign of bottom-fishing.

Let's look at the activity. Yesterday, the AVB January 25 calls saw volume of more than 14,000 contracts, vs. open interest of just 1,750. With the stock trading around $60.50, down more than $1.25 on the day, you might wonder if this activity was caused by a bullish investor buying calls that are way in the money instead of buying stock. Or, was it a bearish investor selling calls rather than shares? ...