Trade of the Day: Citi (C) January $35/$42/$49 call butterfly spread

The Trade

Trader executed January $35/$42/$49 call butterfly spread 25,500x for a maximum risk equal to a $.95 debit, $2,422,500 total. Profit potential is limited to $42, a gain of over 50% at current levels, $15,427,500 total.

Trade is bullish, looking for a bounce to prior levels. First break-even is $35.95. Shares finished the month of July at $38.34, but suffered substantial losses, down 21.9% month-to-date. Chart above highlights first break-even with the lower line and maximum profit potential with the higher line.

The January $42 call traded over 54,000 contracts and is the most active.

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No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

A Quick Look at the Charts : BAC (Bank of America) & C (Citigroup Inc.)

Experimenting with posting a few 60 min charts here. Let us know how you do/do not like it...

A quick look at the charts - Bank Of America and Citigroup Inc.

Trade of the Day: Short 5,000 Citigroup Inc Jan 13 5.5 straddles

Today one strategist sold 5k Jan 13 5.5 straddles for $1.95. (*Note there is some debate weather the trader went synthetically short or shorted the straddle but for education purposes lets assume they sold the straddle.)

Max risk is unlimited, max gain is the credit of $1.95 per spread or $975,000. The spread is short vega (volatility), short gamma, long deltas (right now), and the passage of time helps.

Lets take a look at the risk reward:

This trade is very interesting to me because this trader doesn't lose money between 3.55 & 7.45! Plus he is short volatility which has been on the high side post crisis and ought to come down to the mid 20's unless the economy has an outside shock or double dips (which is always possible). Below is a chart that shows the profitability zone:

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.