Schaeffer's Trading Floor Blog

Options Check-Up: Citigroup Inc and General Electric Company

Analyzing recent option activity for C and GE

by 5/1/2014 9:09 AM
Stocks quoted in this article:

Among the stocks attracting attention from options traders lately are financial kingpin Citigroup Inc (NYSE:C) and diversified conglomerate General Electric Company (NYSE:GE). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on C and GE.

Option bears have increased their presence in C's options pits of late. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.61 ranks in the top quartile of its 12-month range, demonstrating C puts have been bought to open, relative to calls, at a faster-than-usual pace during the past two weeks.

Now may be an opportune time to place short-term bets on Citigroup Inc, which is down 13.3% from its Jan. 9 five-year high of $55.28 to trade at $47.90. Schaeffer's Volatility Index (SVI) for the stock -- which went ex-dividend today -- stands at 18%, ranking 6 percentage points from an annual low. In short, front-month options contracts are inexpensive right now, from a volatility standpoint.

Although options players are demonstrating some bearish tendencies, there are also signs of complacency toward the banking giant. For one, 14 of the 21 analysts following the stock have named it a "strong buy." Also, short sellers are practically nonexistent; just 1.3% of the equity's float has been sold short. A change in opinion from Wall Street could spur additional downside in the shares, which would be a welcome development for recent put buyers.

Although up 10.6% from its Feb. 5 year-to-date low of $24.32 to trade at $26.89, GE has also seen an acceleration of put buying, relative to call buying, in its options pits recently, with the equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.36 ranking in the 72nd annual percentile. In good news for premium buyers, prices on General Electric Company's front-month options are nearing annual-low levels, relatively speaking, as the stock's SVI of 14% ranks just 3% from a 12-month low.

The trend in yesterday's options pits took a different tone, however, as speculators evidently sold to open a hefty number of June 26 puts. Open interest popped overnight at this out-of-the-money strike, where 95% of yesterday's volume traded at the bid price. These puts are effectively a bet that GE will be trading north of $26 when the puts expire on Friday, June 20 -- otherwise the sellers may be forced to buy GE shares for $26 apiece. Off the charts, GE is anxiously anticipating the final decision from Alstom SA on the acquisition of its energy assets.

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