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Citigroup Inc (C) Option Traders Bullish Ahead of Earnings

Citigroup Inc will report quarterly earnings ahead of next Monday's open

by 7/8/2014 9:08 AM
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Bullish betting has been gaining in popularity on Citigroup Inc (NYSE:C) in the weeks leading up to the company's turn in the earnings confessional. In fact, since June 24, the equity's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has grown to 2.36 from 1.66. What's more, the current ratio ranks in the 60th annual percentile, pointing to a heightened demand for long calls over long puts.

On Monday, the most active C strike was the July 50 call, with all signs pointing to buy-to-open activity. These out-of-the-money calls were purchased for a volume-weighted average price (VWAP) of $0.15, making breakeven at next Friday's close -- when front-month options expire -- $50.15 (strike plus VWAP). Gains will accrue with each step north of here, while losses are capped at the premium paid, should C settle south of the round-number strike at expiration.

Looking elsewhere reveals that the June 50 call has been in demand among option traders. Specifically, this strike houses peak call open interest of 53,696 contracts in the July series. With C closing Monday at $47.98, this could create a layer of options-related resistance for the shares, as the hedges related to these bets are unwound ahead of expiration.

As touched upon, Citigroup Inc (NYSE:C) is scheduled to unveil its quarterly earnings report before the market opens on Monday. Consensus estimates for C's second quarter are for a profit of $1.09 per share -- a quarter less than what the banking concern earnings one year ago.


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