Citigroup Inc (C) Sees an Influx of Pre-Fed Put Trading

Ahead of tomorrow's policy announcement from the Fed, Citigroup Inc (NYSE:C) put open interest just surpassed call open interest for the first time this year

Dec 13, 2016 at 10:52 AM
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Bank stocks are in the bullish limelight today, after Bernstein chimed in on a number of names in the financial sector. Citigroup Inc (NYSE:C), for instance, saw its price target raised to $68 from $64, territory the financial shares haven't traded in since January 2009. Nevertheless, C stock is down 0.8% at $59.07 ahead of tomorrow's policy decision from the Fed, with expectations near-unanimous that the central bank will raise interest rates. And while C stock is still up more than 24% since bouncing off its 50-day moving average on Nov. 4 -- days before bank stocks began their post-election rally -- options traders have been bracing for a quick retreat.

According to Schaeffer's Senior Quantitative Analyst Rocky White, C has been heavily targeted by weekly options traders in recent weeks -- with puts seeing more action than calls. Specifically, in the last two weeks, nearly 87,000 weekly puts have been traded on C, compared to 78,269 weekly calls. Drilling down, C's weekly 1/6 51-strike put has seen the biggest rise in open interest of any weekly option over this time frame, with 9,300 contracts added. It looks like the bulk of this activity was of the buy-to-open kind, as traders eye a move south of $51 by expiration at the close on Friday, Jan. 6.

More broadly, though, C sports a top-heavy Schaeffer's put/call open interest ratio (SOIR) of 1.23 -- higher than all comparable readings taken in the past year. Simply stated, short-term speculators are more put-heavy now toward C stock than they've been at any other point during the past year. In fact, while both put and call open interest are at the top of their respective annual ranges, Citigroup put open interest just surpassed call open interest for the first time this year. By the numbers, there were roughly 1.34 million open puts on C at last night's close, compared to 1.25 million calls. C's January 2017 55-strike put is the stock's top open interest position, with 440,226 contracts outstanding.

Given C's impressive technical showing, it's likely many of those buying to open puts are shareholders protecting paper profits against an unexpected pullback. However, skepticism is on the rise outside of the options pits, as well. In fact, short interest jumped 39.2% in the most recent reporting period to 40.3 million shares -- the highest amount since mid-October 2015. However, C's bearish bandwagon is far from full, considering just 1.4% of the stock's outstanding float is currently sold short.

Additionally, it appears the shares of Citigroup Inc (NYSE:C) may have been due for a near-term breather, as well. Heading into today's trading, the stock's 14-day Relative Strength Index (RSI) was docked at an oversold 71. Plus, the shares continue to struggle beneath the round $60 region -- an area that has served as resistance since the 2008 financial crisis. In fact, with more than 30,000 contracts currently housed at C's December 60 call, this area could continue to serve as a ceiling ahead of front-month options expiration at this Friday's close.

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