A bet using options that a long-underperforming bank is finally turning the corner

Published Wed, Feb 14 202410:49 AM EST

Citigroup has been working on a turnaround for nearly 20 years. There has been a revolving door of CEOs, but Jane Fraser has seemed to catch investors' attention finally. As the bank shed unprofitable businesses and focused on generating revenue growth, the stock has not underperformed over the last 10 months. There are signs that a potential turnaround is starting to take shape, and there is an opportunity to start adding a small position to a portfolio. Citigroup has traded within a band of roughly $35 and $80 over the past 12 years, after tumbling 98% during the financial crisis. Its most recent visit to the bottom of the trading range was in October of last year. And after clearing above a $52 resistance level, Tuesay's selloff brings us back to this $52 level that now acts as support. Adding a small position provides an extremely attractive risk/reward. A break below $52 would trigger a stop loss and a small amount risked, while our upside target is $68 initially and $80 as extended targets. The trade The story looks even more attractive when we look at valuations. Citi currently trades at only 0.6 tines book value, while its peers typically trade at twice or three times that. Additionally, I am quite comfortable as an investor buying into a bank that is trading at 7 times forward earnings. These valuations provide better assurance that the downside should be fairly limited, unless the economic picture were to weaken significantly. Options on Citigroup are not very expensive, so my preference is to capture the potential upside by using a simple call option. I'm looking to buy the April $52.50 call at a $3.40 debit. This would risk $340 per contract, or roughly 6% of the stock's value to gain unlimited upside exposure until the April expiration. DISCLOSURES: (No disclosure) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.