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Citigroup Inc (C) Option Bulls Brace for Short-Term Gains

Citigroup Inc sees heavy activity at an in-the-money June call

by 6/6/2014 2:22 PM
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Option Brief: Citigroup Inc (NYSE:C) speculators have honed in on short-term options today, with all 10 of the most active strikes expiring within the next six weeks. Furthermore, about 73% of the day's activity has taken place on the call side of the aisle, where volume is currently nearly three times the average intraday amount.

Digging deeper into the data shows C's June 49 call is at the center of attention. The majority of the roughly 10,350 contracts traded at this strike have gone off at the ask price, and implied volatility (IV) has ticked higher, suggesting long bullish positions are being purchased. At least a portion of this buy-to-open activity has been confirmed by data from the International Securities Exchange (ISE).

Given that Citigroup has bounced 1% today to $49.10, the June 49 call is now in the money. However, buyers of this call will not see a profit unless the equity finishes north of the breakeven price of $49.56 (strike plus the volume-weighted average price of $0.56) at the close on Friday, June 20, when front-month options expire.

While C has gained nearly 6% over the last month, and breakeven on the call is a slim 0.9% away from the shares' current perch, it should be noted the stock has not closed north of $49.56 since late March. With that being said, should the equity end up below the 49 strike at the call's expiration, the most today's option bulls stand to lose is the initial premium paid, which was relatively inexpensive. Not only did Citigroup's 30-day at-the-money IV reach an annual-low level today, but the stock's Schaeffer's Volatility Index (SVI) also sits at an annual low of 14%. In other words, front-month C options are cheaper now than they have been at any other time in the past 12 months, from a volatility standpoint.

On a fundamental note, Citigroup Inc (NYSE:C) announced last night law firm Willkie Farr & Gallagher will supervise the investigation into the fraudulent loans discovered at C's Mexican unit Banamex back in February. The finding forced the banking concern to lower its 2013 profit by $235 million.

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