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Shorts could hit the exits on an upside earnings move for Citigroup stock

Managing Editor
Jan 12, 2018 at 1:02 PM
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Bank earnings are in focus today, and financial institution Citigroup Inc. (NYSE:C) is expected to report its fourth-quarter earnings before the markets open on Tuesday, Jan. 16. Below, we will dig deeper into how the stock has been faring ahead of its highly anticipated report, and why C options can still be had at a bargain.

C stock has had a stellar year, picking up more than 28% over the past 12 months alone, with its rising 80-day moving average containing recent pullbacks. Citigroup stock was last seen up 1.1% at $76.40, pacing towards its highest close since early December, just after the shares notched a post-financial crisis high of $77.92. 

As far as earnings reactions, the stock's post-earnings moves have been relatively modest, averaging a swing of 1.7% in either direction in the session after its last eight reports. This time around, however, the options market is pricing in a bigger-than-usual 3% move for next Wednesday's trading, per at-the-money implied volatility data.

Even with a potential volatility catalyst on the horizon, the security's Schaeffer's Volatility Index (SVI) of 28% is ranked lower than 95% of all comparable readings taken in the past year, meaning low volatility expectations are being priced into near-term contracts. In other words, it's an attractive time to buy premium on short-term Citi options, too. 

Digging deeper, short interest on Citigroup stock has risen more than 90% since last May, currently resulting in a hefty 27.65 million shares sold short. The shorts may be forced to buy back any losing bets in the wake of an upside earnings reaction, which could drive C even higher.

 

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