C

so cite a specific trade, using citibank options. if you're going to comment, back it up with numbers.

show me the money.

 

How is there no downside risk in the stock?

I respect that everyone can have their own opinion but you're looking for several hundred % return in the stock by next year, from a company thats on the brink.

 

If you are working under the "assumption the stock will continue to creep up every month" then you would maximize your profit by buying ATM calls each month.

Personally I think that is a flawed assumption but that wasn't the question...

 

citibank is nowhere close to being on the brink. in fact, it is the strongest of any bank in the world now almost completely across the board, it's financial statement is healthier now than ever, and it has massive cash reserves from which to loan back out into the market, which is the next major stage of the recovery. $450B in fact.
the multiplier effect of even half that loaned out to business and consumers will be staggering.

no, i like citibank, a lot. you may not and that's your opinion, but when you take a $4 stock and break it down 4:1 on margin, doubling my money ever $1 it rises, i'm more than willing to that risk on writing covered calls well into the next two years.

 

I respect your opinion but like mine its just an opinion. I would hardly call C the strongest bank in the world and if you really believe there is no downside risk in the stock, I would suggest that purely on a statistical basis non opinionated there is always downside risk. There is a reason why the puts trade richer than the calls.

 

If there were a smooth-continuous trajectory upwards, with the underlying always conveniently atm or just otm at expiry, it may be possible.

However, the reality of a non linear trajectory (even if the stock is in an uptrend) often intervenes to snatch real and potential $$$ straight off the bottom line.

At 5% per month we'd all just write CC's and retire rich in a couple of years.

Nice work if you can get it.

 

agreed.

i think citibank is the strongest bank in the world because it's backed by the wealthiest country in the world, or they'd have been allowed to fail.
even if the usa is technically bankrupt. but that's neither here nor there. this is about the stock, not politics.

the otm puts should trade equal to the otm calls, but you're right, they don't, but are very close. .10 is the difference between the NOV5P and NOV3C, but stock fluctuates .05-.10 at $4, so the arbitrage on that is pretty f'n thin unless you're doing massive blocks.

with volume at 400M shares at 3PM, someone is making a killing on that difference.

i'm still willing to bet that C has the upside potential at a significantly higher ratio to the downside, even though the percentages are inverted.

you're making a fundamental assessment when the purpose of this thread was to solicit suggestions on strategy.

 

We’re both making fundamental assessments. They may in fact be forced to break up at some point in the future.
Technically the call and put equidistant from the at the money should NOT trade at the same price. In addition to that the OTM put / ITM call same strike will always trade at a higher volatility than an OTM call/ ITM put same strike since there is always a skew in IV. That skew is there for one darn good reason, there is always a probability, whether its tiny or not that the company will implode, or the CEO dies in a plane crash, or they get a Wells notice from the SEC or anything along those lines. That being the case there is always the existence of downside risk in the stock.
As far as buying and holding C and doing the covered write to generate monthly income, it can work but IMO there are far superior stocks you could find to implement that strategy with. The nature of a 4 dollar stock is such that it will trade at a high IV but the premium in real dollars is not all that high.

As far as C’s upside potential vs. its downside it’s not a real comparison since you can only lose 100% on an investment yet you could return an infinite amount.

If the stocks trading at 4 then you need to look at the NOV 3 put and NOV 5 call, which is the opposite of what you posted. There is NO pure arbitrage on those strikes whether the underlying is static it not.

Why would you indicate that 400 million shares means someone is making a killing? C is part of a large number of indexes and a good portion of that volume is done in basket automated trading on other arbitrage and hedging strategies. It’s not like institutions are trading a lot of that volume back and forth and making the spread all the time.

 

1M shares with a .02 to 05 fluctuation every few minutes, then definitely there is flash trading going on here and profit being made. no other explanation.