The Wall Street Journal-20080116-Financial Woes Stir Citigroup- J-P- Morgan
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Financial Woes Stir Citigroup, J.P. Morgan
The bevy of financial-industry troubles attracted options traders.
Citigroup Inc. saw heavy activity in put contracts as its fourth- quarter earnings were wiped out by a write-down related to mortgage securities and other credit instruments. Citigroup shares fell 7.3% to $26.94.
Trading in January contracts suggested some traders were cashing in on the decline in Citigroup shares.
Options that give holders the right to sell Citigroup shares at $27.50 by week's end more than doubled in value as the company's shares sank below that threshold. Those January 27.50 puts were selling for 98 cents each, compared with five cents to 10 cents a month ago.
Nearly 53,000 of these contracts changed hands, making them among the most active of the Citigroup January contracts.
Activity further out in Citigroup options suggested to Optionetics analyst Fred Ruffy that some traders were trying to capitalize on further big moves in Citigroup's stock price.
In March contracts, traders were taking a so-called strangle trade, a combination of call and put options at different strike prices. Mr. Ruffy said traders were buying calls at a $32.50 strike price and buying puts at $22.50.
The position cost 83 cents, making it an inexpensive bet Citigroup shares will climb either above $32.50 or fall below $22.50 in coming months.
Traders also went after options on other financial-services firms, particularly as the companies continue to report earnings this week.
About 128,000 puts traded in J.P. Morgan Chase & Co., six times the average daily volume last month. Puts exceeded calls by two to one.
The New York bank is scheduled to post quarterly earnings today. Shares ended trading yesterday at $39.17, off $2.19, or 5.3%.
Also active were contracts on the Financial Select Sector SPDR Fund, or XLF, which tracks the performance of financial stocks in the Standard & Poor's 500-stock index. About 184,000 call contracts changed hands, about equal to the puts, according to Track Data.
