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Citigroup Inc (NYSE:C) bulls remain unfazed by the Sept. 23 disclosure suggesting weakened third-quarter revenue could impact the bank's upcoming earnings report. The stock dipped 3.2% that day, and has only drifted lower from there to its current perch at $48.75. Still, front-month option traders are scooping up long calls that will expire shortly after Citigroup's next earnings report.
Among today's most active Citigroup options is the October 47 call. More than 3,000 contracts have changed hands, outstripping current open interest of 1,884. Additionally, nearly all of the calls have traded at the ask price and implied volatility has edged higher, all pointing to the initiation of new bullish positions. Data from the International Securities Exchange (ISE) also indicates a number of buy-to-open orders.
These in-the-money calls traded for a volume-weighted average price (VWAP) of $2.24. In order for today's call buyers to be in profitable territory when these options expire, C needs to be sitting above $49.24, which is the strike price plus the VWAP.
These options are a little pricey, from a historical perspective. Implied volatility at the October 47 strike sits at 30.9%, compared to the one-month historical (realized) volatility of 19.9%. In other words, speculators are willing to pay a bit more for their long call bets as earnings approach.
The banking giant is scheduled to disclose its third-quarter results ahead of the open on Tuesday, Oct. 15. Analysts are expecting a profit of $1.06 per share, equal to year-ago results. In the past eight quarters, Citigroup Inc (NYSE:C) has topped earnings expectations on six occasions, but has nonetheless retreated an average of 0.4% in the day subsequent to its earnings report.
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