Schaeffer's Trading Floor Blog

Options Check-Up: Citigroup Inc, Family Dollar Stores, Inc., and Google Inc

Analyzing recent option activity for C, FDO, and GOOGL

by 7/8/2014 5:20 PM
Stocks quoted in this article:

Among the stocks attracting attention from options traders lately are financial giant Citigroup Inc (NYSE:C), discount retailer Family Dollar Stores, Inc. (NYSE:FDO), and Internet stalwart Google Inc (NASDAQ:GOOGL). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on C, FDO, and GOOGL.

  • C slipped 1.2% on Tuesday to close at $47.42, after KBW initiated coverage on the stock with a "market perform" rating and a price target of $52. On a longer-term basis, the shares remain in the red both year-to-date and year-over-year. However, during the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly three Citigroup Inc calls for every put. The resultant call/put volume ratio of 2.95 ranks near the top quartile of its annual range, suggesting optimism is running high. However, should these option bulls capitulate in light of C's consistent underperformance, it could spark additional losses. Whatever the case may be, now is a relatively good time to pick up short-term options on C, as its Schaeffer's Volatility Index (SVI) of 22% rests lower than 61% of all other readings from the past 12 months. On the fundamental front, C will report quarterly earnings ahead of next Monday's open.

  • FDO -- which is slated to report fiscal third-quarter earnings before the open on Thursday -- finished fractionally lower today at $64.38, despite Deutsche Bank upping its price target for the stock by $2 to $59. Meanwhile, option speculators have preferred long calls over puts, as evidenced by the equity's 50-day ISE/CBOE/PHLX call/put volume ratio of 4.74, which is just 4 percentage points from a 52-week bullish acme. Nevertheless, since short interest on Family Dollar Stores, Inc. increased nearly 38% during the past two reporting periods (and now makes up 10.5% of the stock's float), a portion of these calls may have been initiated by short sellers in order to act as hedges against an unexpected rally. From a volatility perspective, short-term FDO options are expensive right now, as the security's SVI of 40% ranks in the 63rd percentile of its annual range.

  • Finally, GOOGL slipped 2.1% to finish Tuesday's session at $578.40, and is up just 3.1% in 2014. Additionally, in the last month, the shares have advanced only slightly. Nevertheless, at the ISE, CBOE, and PHLX, Google Inc's 10-day call/put volume ratio has increased to 2.36 from 1.43 one month ago, signaling increased demand for bullish bets over bearish. Right now, short-term GOOGL options can be had on the cheap, too. The stock's SVI of 33% sits lower than 99% of all other comparable metrics from the past year. Meanwhile, the company will unveil its quarterly earnings results after next Thursday's close.

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