Bullish Options Traders Active on Citigroup Stock Before Earnings

C stock has a recent history of negative earnings reactions

by Karee Venema |

Published on Oct 11, 2017 at 1:40 PM

Citigroup Inc (NYSE:C) will join fellow big-cap bank JPMorgan Chase (JPM) in the earnings confessional bright and early tomorrow morning, as third-quarter earnings season gets underway. Despite the stock's history of negative earnings reactions, C options traders have been loading up on long calls ahead of the quarterly event, with 2.66 calls bought to open for each put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) in the past 10 days.

This trend toward calls is evident among the short-term options crowd, too. Citigroup's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) sits at 0.33, meaning near-the-money calls roughly triple puts among options set to expire in three months or less.

Over the past 10 days, specifically, C's October 76 call has seen the biggest increase in open interest, with almost 22,400 contracts initiated. Trade-Alert indicates the bulk of this activity occurred on last Thursday, Oct. 5, when one speculator apparently rolled her long October 74 calls up to the 76 strike, betting on break out above $76 by expiration at the close on Friday, Oct. 20.

Looking at the charts, Citigroup stock tiptoed above $76 last Friday, when it topped out at $76.02 -- its highest mark since December 2008. Longer term, the security has added more than 53% over the past 12 months - with the banking sector one of the biggest beneficiaries of the so-called Trump trade. Today, C shares are fractionally lower to trade at $75.17.

However, the session following the company's earnings report has not been kind to the stock in recent quarters. Specifically, Citigroup stock has logged a single-session post-earnings decline in six of the last eight quarters, averaging a loss of 1.6%. For tomorrow's trading, the options market is pricing in a 2.9% move, regardless of direction.

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