Trade Update Dec 14th, 2011: Citi is down about 7.5% since buying the Dec 27/25 Put Spread for .43 last Thursday. I am now going to sell half of this Put Spread at .78 with a little more than 2.5 days to expiration and almost a double on the spread. At this point I will let the other half ride as I think there is a strong likelihood that banks and the market continue to be weak into Friday’s expiration. But given the volatility that we are seeing in the market and in particular in this sector I Think it makes sense to take your cost off of the table when you can.
Original Post Dec 8th, 2011: Citigroup (C): Fading EU Summit With Defined Risk in Bank Stocks, Again
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.