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Citigroup Inc (C) Trader Bets Big On a Breakout

Citigroup Inc's July 50 call is seeing buy-to-open activity today

by 5/9/2014 2:07 PM
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Option Brief: Although Citigroup Inc (NYSE:C) is failing to make much move of a move this afternoon -- last seen 0.1% lower at $47.08 -- option players are once again showing a preference for calls over puts. By the numbers, around 26,000 calls have changed hands thus far, compared to 18,000 puts. The most active strike is the July 50 call, and it appears one speculator in particular targeted this round-number strike in hopes of a rally to levels not seen since late March over the next two-plus months.

Within the first hour of today's trading, one block of 5,000 July 50 calls changed hands closer to the ask price of $0.58, suggesting buyer-driven activity. Meanwhile, implied volatility (IV) edged higher at the transaction, hinting at the initiation of new positions. As touched upon, Citigroup hasn't traded north of this round-number mark -- home to its 200-day moving average -- since March 26, and is down nearly 7% from that session's intraday high of $50.58. Not surprisingly, then, delta for the call is docked at 0.26, implying a roughly 1-in-4 chance of an in-the-money finish at the close on Friday, July 18, when the options expire.

Should the equity fail to topple the $50 mark, the most the speculator stands to lose is the initial cash outlay, which in the case of today's call buyer equates to $290,000 (number of contracts * premium paid * 100 shares per contract). However, considering IV at the July 50 call is slightly deflated relative to the stock's 40-day historical (realized) volatility (20.3% vs. 24.7%), premium at this strike is less expensive than usual, from a volatility perspective.


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