Option Trader Bets $4M On Citigroup Stock Ahead Of Q4 Earnings

Citigroup Inc. C shares are up 60.4% since the beginning of November, but at least one larger option trader is betting on more upside ahead of the company’s upcoming fourth-quarter earnings report.

The Citigroup Trades: On Wednesday, Benzinga Pro subscribers received several alerts related to unusually large Citigroup option trades. One trade stood out because of its size and the expiration date of its contracts:

• At 10:04 a.m. EST, a trader bought 3,498 Citigroup call options with a $55 strike price expiring on Friday. The contracts were purchased near the ask price at $11.444 and represented a $4 million bullish bet.

Related Link: How To Read And Trade An Options Alert

Why It’s Important For Citigroup Investors: 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 call purchase on Wednesday, it could certainly be an institutional hedge.

Citigroup Earnings Beat Coming? The most obvious explanation for the large call purchase on Wednesday is that a deep-pocketed trader simply believes Citigroup is going to report some impressive fourth-quarter earnings numbers on Friday morning.

In October, Citigroup reported a big third-quarter earnings beat driven by $3.8 billion in fixed income trading revenue.

Analysts from Barclays, Bank of America, Goldman Sachs and other firms have recently come out bullish on bank stocks in 2021. The Federal Reserve recently greenlighted bank buybacks starting in the first quarter, so Wednesday’s large option trader may even be more focused on Citigroup’s 2021 guidance than its fourth quarter.

Analysts are expecting Citigroup to report fourth-quarter earnings per share of $1.34 on revenue of $16.7 billion, down 9.1% from a year ago.

Benzinga’s Take: The large option trader may be betting that Citigroup’s guidance will blow investors away given high expectations for bank buybacks, another major stimulus package and a rebound in the overall U.S. economy following vaccination rollouts.

The $55 calls purchased have a break-even price of $66.45, suggesting only modest upside from current levels.