Tuesday, December 7, 2010

Citigroup (C) - Stock and Vol Pop on Government Exit

C is trading $4.63, up 4.0% with IV30™ jumping 10.0% on the US government exit news. The LIVEVOL™ Pro Summary is below.

News from AP below:
NEW YORK -- Citigroup Inc.'s shares rose in premarket trading after the U.S. government made a deal to sell remaining shares of the company for a $12 billion profit on the big bank's bailout.

The stock of the bank added 12 cents, or 2.7 percent, to $4.57 on Tuesday.
The Treasury Department said late Monday that it's selling 2.4 billion shares at $4.35 apiece. Adding in the $20 billion that Citigroup repaid in December 2009, the government will get back a total of $57 billion from the bailout.

Citigroup received $45 billion in taxpayer support late in 2008 in one of the largest rescues undertaken by the government as it worked to stem the worst U.S. financial crisis since the Great Depression.
The government stepped in to rescue other banks during the financial meltdown. The latest estimate from the Congressional Budget Office in late November was that the $700 billion Troubled Asset Relief Program would end up costing the government $25 billion, down from an August CBO estimate of $66 billion.
Source: AP

The company has traded 1.4 million contracts on total daily average option volume of just 518,594. Calls have traded on 5:1 ratio to puts. Net premium and net deltas are very positive - people are buying calls. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. Jan 4, 4.5 and Dec 4.5 calls are active in the front two months.

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see that both Dec and Jan have upside skew.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the stock has jumped of late going from ~$4.10 to now over $4.60 in the last two weeks or ~12%.

Potential Trades to Analyze
There are a few ways to play this one.

1. You can look to purchsase stock if you believe in the recovery story.

2. You can sell some elevated vol while getting long:
Do a buy-write (or selling a put is equivalent).

3. Do #1 and sell some puts. Double long and selling the elevated vol.

4. Buy cheap calls and look for both a stock rise and a vol increase.

5. Just sell vol (straddles and stangles) delta neutral.

This is trade analysis, not a recommendation.

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