Monday, April 19, 2010

Citigroup long-term options (C)

The stock is trading up 8 cents in late pre-market action.
I'd have been satisfied with a breakeven quarter, the $4.4 Bil. profit was gravy.
The January 2011 $5.00 strike calls got spanked on Friday, closing at 59 cents.
The Jan. 2012 $5's and 7.50's closed at $1.03 and $0.41 respectively.
From BloggingStocks (Apr. 1):

Take a LEAP with Citigroup (C)

"Imagine a business backed by taxpayers; better yet, a business that gets taxpayers' money at zero percent interest (or close to it) and then loans money back out to those same taxpayers at a 3% rate, or more," suggests Karim Rahemtulla.

The editor of The Xcelerated Profits Report explains, "Sounds like a sweet deal, right? But it gets even better. Taxpayers also cover a good chunk of the bad debts, too. So if you have toxic loans, you get to write them off at almost no cost. Where is this financial utopia? Right here in the United States."
Rahemtulla continues, "Many struggling mega-banks have ditched their bad assets, with the bailout-happy U.S. government "holding" them until they're removed from the books.

"Meantime, these firms borrow money from the government at ridiculously low rates and then buy government debt, pocketing the difference to shore up their balance sheets.

"The most egregious example of this is Citigroup (C). Once a powerhouse, the company has begged for massive government guarantees and capital infusion.

"On the bright side, it's forced the firm to dump its money-losing operations, sell other assets and rationalize its operations -- to the point where it might actually turn a big profit in the next couple of years.

"Of course, you can argue that this wouldn't happen if the bank hadn't received a bailout. But we're not in this to make moral judgments. We want to make money. And since Citi has made plenty from us already, let's take some back.

"Moreover, when LEAP options are available for the right duration and price, it's a no-brainer. LEAPS allow you to risk a small percentage of what you would ordinarily spend if you were to invest in the underlying security outright.

"And instead of trying to predict what will happen in a week in order to make money, you'll have years on your side, giving you a much better chance of success. Here's the deal ...

"Right now, Citi has largely managed to remove itself from the government's shackles. The Feds still have a stake in the bank through equity and warrants, of course, but that is all.

"And since Citi has jettisoned much of its leveraged trading operations, it faces less impact from future government regulations aimed at curbing proprietary trading.

"What's more, the company still holds its most important asset: a mammoth global network of banking operations, with offices in many countries.

"Add in the firm's rock-solid U.S. deposits and branch network, plus a strong footing the in the investment banking business and we have an opportunity to buy a company that could earn between $0.70 and $0.90 a share next year.

"In fact, based on its current share price of around $4, Citi is arguably the most undervalued of the bailed-out financial institutions.

"Action to Take: Buy the Citigroup January 2012 $7.50 LEAP calls. Don't pay more than $0.34....MORE

Obviously the options are going to cost more. I'd scale in and pray for volcanoes.