With Pandit Out, Is It Time to Bet on Citi?
Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action ."
Since Pandit became CEO in December 2007, Citi's stock has fallen 88 percent. Compare that to a 6 percent gain for Wells Fargo and 2 percent gain for JPMorgan over the same period.
(Read More: Pandit's Sudden Exit: What Really Happened at Citi? )
Option trading was also bullish Tuesday, with a put/call ratio of 0.71. The biggest trade of the day was the purchase of 10, 000 January 2014 45 calls for $2.75, which was put on when the stock was trading at 37.00. This bullish trade is a bet that Citi's stock will be above 47.75, or 23 percent higher, at Jan. '14 expiration (which is 457 days from now).
Why might this be good idea?
Well, we noticed on Tuesday that implied volatility in Citi options plummeted to a 52-week low as the stock rallied. Translation: Option premiums are relatively low on the stock right now. When implied volatility falls to extremely low levels, it is a good time to consider buying out-of-the-money options — either calls to bet on a rally, or puts to insure a stock position.
(Read More: Vikram Pandit Tells CNBC: I Was Not Forced Out at Citigroup .)
This trader is betting on a rally, and Citi's chart looks poised to deliver. If the stock can close above 38.50, the next major area of resistance is around 45.00, which is where the stock found its July 2011 highs. Should Citi break out, these Jan. 2014 calls could prove an excellent buy.
Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action ."
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