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Option Brief: Citigroup Inc (NYSE:C) has edged higher along with the broader equities market, up 1.1% at $48.14. From a longer-term perspective, the equity remains 7.6% lower year-to-date, with recent rebound attempts stalling in the $50 region -- home to the shares' formidable 20-week moving average. However, despite Citigroup's woes on and off the charts -- which former chairman John Reed chalked up to "managerial turmoil," among other things -- options players are gambling on a short-term uptick for C.
Within the first 90 minutes of trading, the stock has already seen roughly 26,000 calls change hands -- a 30% mark-up to its average intraday volume. For comparison, fewer than 4,800 C puts have traded thus far. Demand for the security's short-term options is growing, as evidenced by C's rising 30-day at-the-money implied volatility (IV).
Most popular is the April 49 call, where more than 4,400 contracts have crossed the tape, almost all at the ask price. Plus, IV at the strike is trending higher, hinting at buy-to-open activity.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.53 -- which represents the maximum risk on the trade -- the buyers stand to profit if C is sitting north of $49.53 (strike plus VWAP) at the close on Thursday, April 17, when front-month options expire. This time frame encompasses Citigroup's first-quarter earnings release, slated for before the open on Monday, April 14. The firm has fallen short of Wall Street's bottom-line estimates in its past two trips to the earnings confessional, and C fell 7.8% in the week after its last report.
Should Citigroup Inc (NYSE:C) once again miss the earnings mark, a round of downgrades could be in store. Currently, two-thirds of the analysts following the stock deem it worthy of a "strong buy" endorsement. Likewise, the average 12-month price target of $59.97 represents expected upside of 24.6% to C's current price, and stands in territory not charted since January 2009 -- leaving the door wide open for price-target cuts to spook the bulls.