Citigroup Inc (C) Option Bulls Bet on Upbeat Earnings

Citigroup Inc (NYSE:C) bulls are placing upside bets ahead of tomorrow's earnings report

by Kirra Fedyszyn

Published on Jul 14, 2016 at 11:08 AM
Updated on Jun 24, 2020 at 10:16 AM

Bank stock Citigroup Inc (NYSE:C) is getting a boost this morning from well-received earnings at sector peer JPMorgan Chase & Co. (NYSE:JPM). In fact, C is up 2.7% at $44.51 -- closing its post-"Brexit" vote gap lower -- ahead of the company's own quarterly earnings, due before the open tomorrow. Meanwhile, the stock's options pits are busy, as traders place last-minute bets and cash in on winning positions.

Jumping right in, C calls are changing hands at roughly twice their expected intraday rate, outnumbering puts by a nearly 4-to-1 margin. The most active strike by a healthy margin is the now-in-the-money July 42.50 call, where traders may be selling to close their positions to lock in paper profits. But new bullish bets are also popular today, with likely buy-to-open action spotted at the July 44 and 45 calls, as well as the August 45 call. Buyers of these calls are looking for shares of C to extend their gains through the respective expirations -- at the close tomorrow and on Friday, Aug. 19 -- expecting earnings to act as a positive short-term catalyst.

That said, it appears options traders have relatively modest expectations for Citigroup's earnings results. At present, the market is pricing in a one-day post-earnings swing of just 3.9%, in either direction -- roughly in line with the average move of 3.3% over the last eight quarters.

A recent preference for calls would suggest traders are hoping for a move to the upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), long calls more than doubled puts over the last 10 trading days. In fact, the resulting 10-day call/put volume ratio of 2.22 sits higher than 72% of the past year's readings. Still, it's worth noting that put open interest is currently seated at an annual high, suggesting put players haven't exactly been silent.

Expectations appear high outside of the options pits, as well. Short interest on C represents just 1.1% of its available float, and fell slightly during the most recent reporting period. And of 16 analysts providing coverage, 11 recommend buying the bank stock, and not one gives it a "sell" rating.

From a technical standpoint, C hasn't done a great deal to deserve all this optimism, shedding 21% of its value year-over-year. Today, the shares are testing resistance at their 160-day moving average -- a trendline that provided support through much of early 2015, but has caused trouble for Citigroup Inc (NYSE:C) in more recent months.

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