New Trade Citi (C): Conf Call To Raise More Questions Than Answers?

by Dan October 16, 2012 3:41 pm • Commentary

I have no clue what went on in the board room of Citi in the last 48 hours or so since reporting a Q3 that was better than expected and having a fairly optimistic tone to the next morning ousting their CEO.  The whole thing seems a bit fishy to me, but the market is speaking, and for the second day in a row C is the best acting U.S. money-center bank.  Not only do equity investors appear complacent, but 30 day at the money implied volatility is trading near 52 week lows and the 5 yr CDS on Citi also shows no concern.

Citi 30 day atm Implied Vol vs 5 Yr CDS from Bloomberg


The Company will be hosting a conference call with investors and analysts today at 4:30pm (here).

Oct options have come in dramatically since the earnings event, but Nov is pretty cheap.  I am going to make a contrarian play that today’s call with the Chairmen of the Board and the New CEO raises more questions than answers and and Buy Nov Put Spreads.

TRADE: C (37.13) Bought the Nov 36/34 Put Spread for .48

-Bought 1 Nov 36 Put for .81

-Sold 1 Nov 34 Put Spread at .33

Break-Even on Nov Expiration:

-Profits btwn 35.48 and 34, make up to 1.52, max gain of 1.52 at 34 or below.

-Losses of up to .48 btwn 35.52 and 36 and max loss of .48 above 36

Conviction Level: Medium at Best, I am stepping into a situation I know little about, but with defined risk, knowingly taking a contrarian position, I will do so with a little prudence and only initiate a 50% position.