Trade Update Citi (C): Closing Nov Put Spread For What I Paid

by Dan October 23, 2012 10:37 am • Commentary

Trade Update Oct 23rd, 2012:  I got a little cute on this trade, looking to fade the excitement following the announcement that Citi’s board had basically dismissed their CEO last Tuesday.  On the close of the day of the announcement, with the stock up 6.5% in two days, I bought a Nov Put Spread, that within 2 more days had lost almost half of it’s value as a result of the follow throw in the stock.

Now, with the stock slightly below where I put the trade on, and the put spread bid where I bought it a week ago, I am going to close the position and move on.  Looking at the last week’s out-performance by Citi, there appears to be a rotation out of JPM into Citi.  At this point I am going to bail out of the position, as I feel I was bailed out by the market and focus my attention on better shorts.

Action: Sold to Close C ($36.93 ) Nov 36/34 Put Spread at .48  for no loss or gain, just a Pfew!



Original Post Oct 16th, 2012: New Trade Citi (C): Conf Call To Raise More Questions Than Answers?

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.