Wall Street megabank Citigroup (C) has been hit hard with the rest of the market in recent weeks, with the stock down 30% from recent highs. One trader sees further downside in the coming weeks.
That’s based on the May $57.50 puts. With 32 days until expiration, 4,803 contracts traded compared to a prior open interest of 134, for a 36-fold rise in volume on the trade. The buyer of the puts paid $2.86 to make the bearish bet.
Citigroup recently traded for about $60, meaning shares would need to decline by $2.50, or about 4%, for the option to move in-the-money. The strike price of the option is just above Citigroup’s 52-week low of $53.51.
Operationally, the bank is coming off a mixed year. Revenue is up 14%, and the bank has a solid 17% profit margin, but earnings growth has been negative.
Action to take: Citigroup likely has more downside in the weeks ahead given the current market fear. However, once the news starts to firm up, Citigroup could be poised to rally, given that shares trade at a discount to their book value, and at just 9 times forward earnings.
At current prices, Citigroup pays a 3.8% dividend.
For traders, the short-term trend is down. The May $57.50 puts could see mid-double-digit returns or better depending on market conditions in the coming weeks. Traders will want to take quick profits.
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 company mentioned in this article.
