Unusual Options Activity: Citigroup (C)

Executive meeting

Major Wall Street bank Citigroup (C) has lost nearly 20 percent over the past year. One trader sees the bank bucking its downtrend and moving higher in the months ahead.

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  • That’s based on the December $44 calls. With 122 days until expiration, 5,731 contracts traded compared to a prior open interest of 229, for a 25-fold rise in volume on the trade. The buyer of the calls paid $3.10 to make the bullish bet.

    Shares recently went for just over $44, making this an at-the-money trade. Shares have a 52-week high of $54.56. A return to just the $50 range would make the $44 calls worth at least $6, or about double from where they trade today.

    Earnings are down by over a third in the past year, amid a slowdown in M&A activity on Wall Street and rising interest rates impacting demand for loans. However, shares look undervalued as they trade just under half their book value.

    Action to take: Citigroup shares look undervalued from here, and are likely to trend higher. Today’s investors can also get an outsized 4.6 percent dividend, on the higher range among the big banks.

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  • For traders, the December calls are priced for high double-digit returns if there’s a rally in shares. While at-the-money shares are more expensive than out-of-the-money calls, they’re also less likely to see a big loss.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.