New Trade – Citigroup (C): Fading EU Summit With Defined Risk in Bank Stocks, Again

by Dan December 8, 2011 11:12 am • Commentary

Last week I laid out the case for Shorting DB into this week’s ECB meeting and EU Summit, but wanted to wait until I got a sense for expectations and where the markets were as we approached the meetings.  Yesterday I decided to Buy a short dated Put Fly in the name (as opposed to the Jan Spread I described on Friday), and after this morning’s ECB press conference following their rate decision and commentary regarding further monetization of European Sovereign bonds I couldn’t believe how US banks were opening (way to strong), So I bought a short dated Put Spread in MS.

European equity markets as of 11am, heading into their last hour of the day, are trading down about 1-2% across the board and our equity markets are down about 1%.  In the “Morning Word” I was careful to note that I wanted to be careful and not press the down opening from the short side and would wait for a rally to lay out more shorts.  Well, I am not sure we are going to get a real rally today in front of the EU Summit, barring any leaks.

At this point I want to continue to make defined risk bets in the banks to the short side, predicated on the idea that no news is not good news out of tomorrow’s meetings in Brussels.  Citi seems like a pretty decent name to pick on from the short side as it has rallied about 21% since Thanksgiving and is widely thought to be in the second tier of large money-center banks.  Here’s the new trade:

TRADE: C ($28.35) Bought the Dec17th 27 / 25 Put Spread for .43

-Bought 1 Dec17th 27 Put for .71

-Sold 1 Dec17th 25 Put at .28

Break-even On Dec17th Expiration:

Profits btwn  26.57 and 25 make up to 1.57 with max gain of 1.57  at 25 or below.

Loses btwn 26.57 and 27 lose up to .43 with max loss of .43 at  27 or higher.