Wall Street megabank
Citigroup (C) is having a strong year, with shares up 52%. One trader sees the stock taking a break over the coming weeks.
That’s based on the October 25 $55 puts. With 28 days until expiration, 10,038 contracts traded compared to a prior open interest of 115, for an 87-fold rise in volume on the trade. The buyer of the puts paid $0.43 to make the bearish bet.
Citigroup shares recently traded for just over $60, so the stock would need to drop by just over $5, or about 8%, for the option to move in-the-money. Shares have already pulled back nearly 10% from their 52-week highs of $67.81, set during the summer.
The bank appears to be at a support zone, and market weakness over the coming weeks could cause a break lower, but only temporarily. That makes a short-term trade to the downside look attractive here.
Action to take: The bank is still inexpensive at about 9 times forward earnings and trading for about 0.6 times its book value. However, the share price weakness suggests further potential downside. Interested investors should hold off on buying until market fears strike.
For traders, the October $55 puts may not move in-the-money, but they could catch mid-double-digit returns or better on any seasonal weakness in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.