The New York-based bank has dominated options activity more than any other single equity option this past week as many investors bet its shares would keep rising.
It is the most actively traded single stock equity option this year so far and was the busiest in 2009 as well, according to the Options Clearing Corp.
Considering how the general option volume has been light, some brokers are saying 'Citi option volume is paying the bills,' said Henry Schwartz, president of option analytics firm Trade Alert.
Year-to-date Citi option volume as of Monday is 53.3 million contracts -- 7.8 percent of the total single-stock option volume so far, said Schwartz.
According to Trade Alert data, current open interest in Citi is 13 million call options more than twice the number of put options, for a total of 18.6 million contracts.
That's 11.4 percent of the total single-stock open interest or the number of existing positions held by investors. The next largest is Bank of America with 9.6 million open contracts -- less than half the Citi level, Schwartz said.
Citi's shares were at $4.97 on Tuesday after bottoming out just under $1 13 months ago. The stock is up nearly 50 percent over the past 12 weeks and investors see it going higher. Its call option open interest has outpaced put open options and has one of its more bullish readings in the last 12 months as volume has exploded.
Ryan Detrick, senior technical strategist at options market research firm Schaeffer's Investment Research said the current put-to-call open interest ratio stands at 0.57 for Citigroup.
That low ratio suggests more bullish call options have been traded relative to bearish put options in the first three expiration months of May, June and September, he said.
This indicates that short-term option traders are betting that Citigroup will begin to outperform in the near term, Detrick said.
THE $5 LINE
A lot of the trading involves the $5 line in both puts and calls although it has been skewed to the call side, said TD Ameritrade chief derivatives strategist Joe Kinahan.
The reason is twofold he said: For one, people are hedging their stock positions with options due to the recent run-up in shares.
The other reason is certain funds cannot trade stocks that are under $5. There is speculative option play that when Citi breaks $5 convincingly, there will be new money that will enter the market purchasing the stock. And in real dollar terms, the premiums on Citi options are very low, Kinahan said.
The stock's low price and massive float explains why it is routinely the most actively traded in the cash market. With more than 28.56 billion outstanding shares in Citigroup, its float is more than both General Electric and Bank of America, the second-and third-largest companies in terms of shares, combined, according to Thomson Reuters Datastream.
OCC data show that last week, more than 11.6 million options traded in Citi as it headed toward its quarterly earnings on Monday.
Citi option volume swelled to 3.4 million contracts on Friday during April options expiration and as the U.S. Securities and Exchange Commission charged Goldman Sachs with fraud.
Another 2.8 million contracts traded in Citi on Monday when the bank posted its best results in nearly three years.
Even on Tuesday, the options were quite active as about 415,000 puts and 1.36 million calls changed hands, according to Trade Alert.
Trade Alert's Schwartz noted the option volume includes some bullish positioning with lots of January $5-$7.50 call spreads. He said some of the Citi volume consisted of non-directional conversion/reversal spreads done for short-term stock loan and interest rate purposes.
There is definitely a perception the downside is limited and there is upside potential to the stock, Schwartz said.
(Reporting by Doris Frankel; Editing by Andrew Hay)