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Options activity is running hotter than usual on Citigroup Inc (NYSE:C) today, with around 30,000 calls and 36,000 puts changing hands thus far -- a 28% increase over the equity's typical intraday volume. By the looks of it, a significant portion of the activity is of the sell-to-open variety, with both groups of traders betting on the banking concern to stick close to its current perch at $49.38 in the near term.
Most active on the call side is the September 52.50 strike, where roughly 7,800 contracts have been exchanged -- the majority of them at the bid price, suggesting they were sold. These out-of-the-money calls traded at a volume-weighted average price (VWAP) of $0.40. Meanwhile, implied volatility has ticked higher, and data from the International Securities Exchange (ISE) confirms that at least some of the contracts were sold to open.
As such, the traders are expecting the stock to remain south of $52.50 through front-month expiration. This would render the options worthless, and allow the sellers to pocket the initial premium collected. Should C muscle atop the strike price, the speculators would be on the hook to deliver the shares for $52.50 apiece, no matter how high they climb between now and the close on Sept. 20. This could also be reflective of a covered-call strategy, in which case the traders are actually shareholders hoping to generate some extra income, or perhaps pick up some modest downside protection.
At the other end of the spectrum, more than 4,000 contracts have crossed at the weekly 8/30 50-strike put for a VWAP of $1.10. Again, the bulk of the puts switched hands at the bid price, pointing to seller-driven activity. Since this strike currently holds open interest of fewer than 2,800 contracts, it's likely that new positions have been created here, as well. The activity looks like a mix of buying and selling, but those purchasing the puts to open are focused on a breakeven price of $48.90 (strike price less the VWAP), which needs to be breached by next Friday's close, in order for the trade to be profitable. This is less than 1% south of where the stock is currently trading.
From a broader sentiment scope, calls have been favored over puts, albeit in a more traditional sense than today's activity. C's 10-day ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio sits at 2.09, indicating calls bought to open have more than doubled puts during the past two weeks. This ratio ranks in the 86th annual percentile, signaling traders have been picking up calls over puts at a faster-than-usual pace. It should be noted, however, that short interest ramped up by 48.7% during the past two reporting periods, which could mean that some of the recent long call volume may be the work of short sellers looking to hedge their bets.
Technically, Citigroup Inc (NYSE:C) has gained almost 25% year-to-date, and more than 60% on a year-over-year basis. However, the shares are in danger of finishing the week below their 20-week moving average for the first time in more than 12 months.