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Option Trader Makes Massive $2.3M Bet On Citigroup

Wayne Duggan

Shares of Citigroup Inc (NYSE: C) traded higher by 8% on Thursday as traders become increasingly optimistic that a $2 trillion stimulus package will help the U.S. economy make it through the coronavirus (COVID-19) outbreak.

Despite concerns over the impact of emergency interest rate cuts, Citigroup shares are rocketing higher this week, and at least one large options trader made a massive bet on Thursday that the rally will continue.

The Trades

On Thursday, Benzinga Pro subscribers received five option alerts related to an unusually large Citigroup option trades:

  • At 10:34 a.m. ET, a trader sold 500 Citigroup call options with a $46 strike price expiring on Friday. The contracts were sold near the bid price at $1.341 and represented a $67,050 bearish bet.
  • At 12:30 p.m. ET, a trader bought 2,000 Citigroup call options with a $37.50 strike price expiring on June 19. The contracts were purchased at the ask price of $11.561 and represented a $2.31 million bullish bet.
  • At 12:39 p.m. ET, a trader bought 930 Citigroup call options with an $80 strike price expiring on Sept. 18. The contracts were purchased near the ask price at 38.9 cents and represented a $36,177 bullish bet.
  • At 12:46 p.m. ET, a trader bought 1,000 Citigroup call options with a $48 strike price expiring on Friday. The contracts were purchased near the ask price at 52.1 cents and represented a $52,100 bullish bet.
  • At 1:51 p.m. ET, a trader bought 1,200 Citigroup call options with a $40 strike price expiring on June 19. The contracts were purchased at the ask price of $9.60 and represented a $1.15 million bullish bet.

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Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest Citigroup option trades, there’s certainly a possibility they could be a hedge on a large short position in Citigroup stock.

Rebound Continues?

Bank stocks took a big hit during the initial COVID-19 market sell-off because their business was getting hit in two ways. Directly, the Federal Reserve cutting interest rates to 0% pressures banks’ net interest margins. Indirectly, a U.S. economic slowdown weighs on loan growth rates.

In addition, traders may have bad memories of what happened to Citigroup stock during the 2008 and 2009 financial crisis, when the bank only survived thanks to a massive government bailout. Even prior to the COVID-19 downturn, Citi shares had still not recovered to their 2007 highs.

The $2.31 million call purchase has a break-even price of $49.06, suggesting 8.8% upside for the stock over the next three months. The $1.15 million call purchase has a break-even price of $49.60, suggesting 10% upside over that same stretch.

Bullish sentiment among StockTwits messages mentioning Citigroup was at 48.7% on Thursday, down from its 2020 high of 93.7% on Feb. 7.

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How To Read And Trade An Options Alert

Benzinga’s Take

Thursday’s large call buyers may realize that Citigroup’s balance sheet is much healthier this time around, and the COVID-19 outbreak does not appear to be threatening the stability of the global financial system. In addition, U.S. banks navigated 0% interest rates for years during the financial crisis recovery, and they are much more efficient today than a decade ago.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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