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Money in the bank: Traders bet big on Citi

Options traders are all over shares of Citigroup, with bullish bets surging as traders expect the stock's recent rally to continue.

Since the start of February, Citi shares have surged 14 percent. And options traders don't think the run will stop now.

Bullish bets on Tuesday made Citi the fourth most popular stock for options trading, as twice Citi's average daily call volume traded.

And in one markedly large bet, one trader bought March 48/55.50/57 risk reversals for no premium. In other words, the money the trader took in by selling the March 48-puts and the March 57-calls offset the amount paid for the 55.50-calls.

Maximum profits come with Citi at or above $57 on March expiration (on March 20). That would represent a 6 percent gain from Tuesday's closing price.

"The nice thing about that trade is that we can specifically see where the stock might go and when it's going to get there," options expert Mike Khouw said on CNBC's "Fast Money."

Read More Citigroup CFO sees markets revenue declining in first quarter

Adam Jeffery | CNBC

However, on the downside, the trader is taking on substantial risk. By selling the March 48-puts, the trader has agreed to buy Citi shares for $48, no matter how far they fall.

So why take on all that risk simply to bet on further upside for Citi?

Well, as Goldman Sachs' options research team points out in a Wednesday note, "options prices are most unusually high on Citigroup." That means that savvy options traders will look to sell more options than they buy—as this trader is doing, by selling a call and a put in order to buy a call—rather than chasing expensive prices by buying options outright.


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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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