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Citigroup Inc. (C) Attracts a Rare Crop of Option Bears

Sector headwinds have lured weekly put buyers to C

by 3/18/2013 11:26 AM
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Bank-related stocks have dipped in the wake of a controversial bailout plan for Cyprus, and Citigroup Inc. (NYSE:C - 46.16) is no exception. Against this backdrop, C has seen a relatively rare spike in put activity, with speculators initiating bearish bets to gamble on more short-term downside.

So far today, the stock has seen roughly 21,000 puts change hands, representing a 45% mark-up to its average intraday volume. Most popular is the weekly 3/22 46-strike put, which has seen almost 2,400 contracts cross the tape. The majority of the puts have traded on the ask side, and implied volatility was last seen 7.9 percentage points higher, hinting at buy-to-open action.

By purchasing the puts at a volume-weighted average price of $0.48, the buyers will begin to profit if Citigroup breaches the $45.52 level (strike price minus VWAP) by Friday's close, when the options expire. Delta for the put moved from negative 0.17 on Friday to negative 0.44 today, pointing to increasing odds of profitability among option traders. However, even if C remains north of the strike through the end of the week, the most the buyers are risking is the initial premium paid. What's more, the security's Schaeffer's Volatility Scorecard (SVS) stands at 99, implying that Citigroup options are attractively priced relative to the probability of an outsized move on the charts.

As alluded to earlier, pessimistic positions have become few and far between for C options traders. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open almost three calls for every put during the past two weeks. In fact, the stock's 10-day call/put volume ratio of 2.92 stands just 3 percentage points from a 52-week peak, suggesting options players have picked up bullish bets over bearish at a near annual-high clip.

At last check, the shares of C have given back 2.5% to test support atop their 10-day moving averages, thanks to the aforementioned concerns about Cyprus. From a longer-term perspective, it's no wonder the options crowd has been upping the bullish ante. The equity has almost doubled since early June, touching a new two-year high of $47.92 just last week.


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