Schaeffer's Trading Floor Blog

Citigroup Inc (C): Could Additional Losses Be in the Cards?

C's recent struggles may intensify, should bulls throw in their towels

by 1/28/2014 1:02 PM
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Option bulls have been pouncing on Citigroup Inc (NYSE:C) in recent days. Specifically, the financial firm's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 5.24, with more than five calls bought to open for each put during the past two weeks. Statistically, this ratio ranks in the 96th percentile of its annual range, meaning traders have scooped up calls (relative to puts) at a faster pace just 4% of the time in the last year.

Digging deeper, peak front-month call open interest for C belongs to the out-of-the-money (OOTM) February 52.50 strike, which is home to 63,825 contracts -- mostly purchased to open. In fact, during the previous five sessions, speculators have initiated 8,130 long positions at this strike, versus 2,514 short ones.

In a similar vein, Schaeffer's put/call open interest ratio (SOIR) for Citigroup is 0.39, with call open interest outweighing put open interest by about a 5-to-2 margin, among options with a shelf-life of three months or less. More significant yet, the SOIR sits at the bottom of its 52-week range, meaning option traders -- looking back one year -- have never been as call-focused toward the shares as they are now.

The bulls aren't limited to Main Street, either. On the contrary, analysts on Wall Street are extremely optimistic on the banking stock. Specifically, the brokerage bunch has doled out 15 "buy" or better ratings on C, versus just five "hold" or worse recommendations. If that's not enough, the equity's consensus 12-month price target of $61.27 represents a 24% premium to the current price of $49.40.

From a technical perspective, this positivity is puzzling. For starters, C has trailed the broader S&P 500 Index (SPX) by close to 7 percentage points during the last two months. What's more, since notching a multi-year high of $55.28 earlier this month, the shares have shed nearly 11% -- pressured lower by a fourth-quarter earnings miss less than two weeks ago.

All things considered, trouble may lie ahead for Citigroup Inc (NYSE:C). Should the option bulls begin to unwind their bets (particularly at OOTM strikes) and/or the brokerage bunch downgrade the stock, the shares could extend their recent swoon.

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