Citigroup Stock Down Over 6% YTD Even As Option Traders Get Bullish

While most major banks are up double digit percentages this year, Citigroup Inc C is down over 6% year-to-date and is one of the weakest performing stocks in the major bank/financial sector.

This is even as option traders turn bullish on the stock, trading over 173,000 options on the day with over 129,000 calls and more than 43,000 puts (image below).

This translates to three out of every four options traded today being bullish, and yet, the stock is down 2.09% on the day. 

What Happened: Over the last two weeks, we've seen several analysts give positive ratings to the stock with price targets 15-20% above the current price.

SEE ALSO: Credit Suisse Maintains Outperform on Citigroup

Generally when stocks get upgrades or outperform ratings by analysts, traders take notice and often initiate forward-looking bullish bets on the stock appreciating over the next 12 months.

Citigroup has definitely received its fair share of bullish bets due to these analyst upgrades, but today stands out for a particularly unique option bet for the Jan. 21 expiry.

Of the approximately 173,000 options traded today, over 20,000 are concentrated at two particularly strikes for the upcoming monthly expiry. They are the $60 and $62.5 strikes with over 10,000 contracts traded on each strike (image below).

Why It Matters: It is not common for two strikes to have approximately 11% of the total option flows in any given day. And the fact they are almost identical in volume suggests a large trader placed an option spread for the $60/$62.5 strikes.

It also appears the option trader paid the ask price for the $60 strike calls, which would make this spread a bull call spread.

Essentially it means this trader took a rather large option bet ($500,000) the stock will rise above $60 to at least $62.5 by the expiry on Jan. 21 with a potential payout of approximately $1,500,000 if the stock closes above the $62.5 strike.

What's Next: Citigroup has earnings on Jan. 14, which is a week before the option expiry. If the earnings come out bullish, this could propel the stock higher to the $60 and $62.5 strikes by the expiry. If however the earnings come out bearish, the stock may dip down to the key support zone between $56 and $54 before finding solid buyers.