Citibank Covered Call Play $$$

[MJ DeMarco]

I've been watching Citibank stock (C) for a covered call play that could yield 25% in 9 months. If the stock doesn't move, 10%.

Here's the strategy:

1) Buy 10,000 C @ 3.47 ($34,700)
2) Sell 100 Jan 11 Calls Strike 4 @ .34 ($3,400)

Sit around and wait.

If C stays at 3.47 you earn 10% on your money in 9 months. (13% annualized)
If C moves to 4 you earn 25% on your money in 9 months. (33% annualized)
If C moves to 3.13 you break even.
If C moves to 3.00 you lose 3%
If C goes bankrupt and fails, you lose $30,300.

The reason I'm eyeing this is I don't think the US government will let C fail and I feel there's a certain element of "safety net" therein.

This is a speculative play so do you own diligence.

I do not own the position -- I was hoping C would get a bit cheaper first.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[GlobalWealth]

Just a slight correction, i think you meant to say 100 calls and your strike price is $4/share.

I like your analysis. I do lots of covered calls. I will add another leg to this which gives you a bit more protection as well. You could also sell 100 Jan 2.50 puts for $.17/share (as of today's close) giving you a total premium of $.51/share.

If C falls to $2.50/share by January expiration you buy the 10,000 shares. But you would have already collected $.51/share giving you a cost basis of $1.99/share. As long as C was above $1.99/share you are profitable.

I have discussed 2 similar trades this week on my investment blog. Its interesting you bring this up because I have been thinking about this exact trade for the past couple of days. I think the govt has already proven they aren't willing to let C go bust.

And with the inflationary policies at hand, the big banks are the first to benefit anyway. The only real risk here is that C shoots up to $12/share next January and you lose out on the additional upside.

 

[MJ DeMarco]

You're right, thanks for the correction, my easy math subroutine in my brain wasn't working.:smx4:

 

[GlobalWealth]

You're right, thanks for the correction, my easy math subroutine in my brain wasn't working.:smx4:

actually I just caught a huge error on my part. I was looking at the 2.50 calls prices not puts. I will edit my post and correct.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[randallg99]

each and every day there is at least a 7 cent move on this stock.

buy 10k shares and sell 10k shares with GTC limits will get you at least 21 cents per week (2.5 trades in/out per week) based upon recent history.

$210 less commissions = $150 weekly

$150 * 39 weeks = $5800 in 9 months

riskier, but using trade alerts, stop limits and triggers makes this a cinch.

keep in mind, C has a lot of risk associated with it... but this very concept is what's making goldman sachs filthy F*cking rich