A Unique Citigroup Earnings Call Trade For April 16

Apr.12.12 | About: Citigroup Inc. (C)

During earnings season, I will go through each and every stock that is scheduled to report for each week and make my decisions based on a number of factors:

  • profitability
  • probability
  • and initial cost

While this can be a very time consuming process, I have found that every now and then a trade that I have been working on for the best possible chance at succeeding makes complete sense even though I may not have previously given consideration to it beforehand.

Citigroup (C) is scheduled to report earnings on April 16, 2012, before the market opens. Currently, Citigroup is trading at $33.59/share. The 52-week range is $21.40 - $46.00.

  • 52wk high: 46.00
  • 52wk low: 21.40
  • EPS: 3.63
  • PE: 9.10
  • Div Rate: 0.04
  • Yield: 0.119101
  • Market Cap: 98.36 B
  • Volume: 30.68 M

I am always looking for profitable trades based on realistic scenarios. As I was looking into Apple's past earnings numbers and how the stock moved afterward, I came upon this trade by moving around the strike prices. The key to this trade is the details, so you must understand how this trade will work.

This trade is going to take a lot of explaining. In my opinion, I would make the trade on Friday, before the market closes, so you get a handle on where the stock price will be trading at.

The strategy I will be using is a 'long put butterfly' spread, but with some major adjusting of the strike prices. The 'long put butterfly' spread is a limited profit and limited risk strategy. This means that you know what your potential gain or loss is going into the trade. The premise of the strategy is to have little volatility. However, when you see what I am constructing with this specific trade, I think you will definitely like the risk/reward with this trade.

Here is a look at how to properly place this trade. (Note: I am using the minimal amount of contracts needed for explanation purposes):

Long Put Butterfly Construction

  • Buy 1 OTM Put
  • Sell 2 ATM Puts
  • Buy 1 ITM Put

In this article, I will use three (3) different type of trade scenarios, using different strike prices. Here is the first trade:

1st Trade: Citigroup

  • Buy 25 April 2012 $31.00 strike put options
  • Sell 50 April 2012 $34.00 strike put options
  • Buy 25 April 2012 $37.00 strike put options

Requirements

Cost/Proceeds $3,350.00
Option Requirement $0.00
Total Requirements $3,350.00
Estimated Commission $125.00
Click to enlarge

Current Price: $33.65

Price Profit / Loss ROI %
23.25 ($3,350.00) -100.00%
27.66 ($3,350.00) -100.00%
31.00 ($3,350.00) -100.00%
32.31 ($72.50) -2.16%
32.34 $0.00 0.00%
34.00 $4,150.00 123.88%
35.66 $0.00 0.00%
36.96 ($3,242.50) -96.79%
37.00 ($3,350.00) -100.00%
41.60 ($3,350.00) -100.00%
46.25 ($3,350.00) -100.00%
Click to enlarge

Trade #2: Citigroup

  • Buy 25 April 2012 $31.00 strike put options
  • Sell 50 April 2012 $33.00 strike put options
  • Buy 25 April 2012 $35.00 strike put options

Requirements

Cost/Proceeds $1,550.00
Option Requirement $0.00
Total Requirements $1,550.00
Estimated Commission $125.00
Click to enlarge

Current Price: $33.65

Price Profit / Loss ROI %
23.25 ($1,550.00) -100.00%
27.18 ($1,550.00) -100.00%
31.00 ($1,550.00) -100.00%
31.33 ($735.00) -47.42%
31.62 $0.00 0.00%
33.00 $3,450.00 222.58%
34.38 $0.00 0.00%
35.00 ($1,550.00) -100.00%
35.47 ($1,550.00) -100.00%
39.61 ($1,550.00) -100.00%
43.75 ($1,550.00) -100.00%
Click to enlarge

Trade #3: Citigroup

  • Buy 25 April 2012 $32.00 strike put options
  • Sell 50 April 2012 $34.00 strike put options
  • Buy 25 April 2012 $36.00 strike put options

Requirements

Cost/Proceeds $1,575.00
Option Requirement $0.00
Total Requirements $1,575.00
Estimated Commission $125.00
Click to enlarge

Current Price: $33.65

Price Profit / Loss ROI %
24.00 ($1,575.00) -100.00%
28.03 ($1,575.00) -100.00%
32.00 ($1,575.00) -100.00%
32.27 ($892.50) -56.67%
32.63 $0.00 0.00%
34.00 $3,425.00 217.46%
35.37 $0.00 0.00%
36.00 ($1,575.00) -100.00%
36.52 ($1,575.00) -100.00%
40.76 ($1,575.00) -100.00%
45.00 ($1,575.00) -100.00%
Click to enlarge

I will be having many earnings related articles coming out in the coming weeks. If you have any questions, please leave a comment or send me an e-mail.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in C over the next 72 hours.