Citigroup Says Buy Bank Puts Because Rally Will Fade !

Discussion in 'ETFs' started by ASusilovic, Apr 1, 2009.

  1. March 31 (Bloomberg) -- Investors should buy put options on financial companies because derivatives-market trading suggests the industry will retreat after a 43 percent surge since March 6, Citigroup Inc. said.

    “Despite the rally, credit and option markets are pricing in increased downside risk,” New York-based Citigroup strategist Alvin Wang wrote in a note sent to clients today.

    He recommended puts giving the right to sell the Financial Select Sector SPDR Fund, an exchange-traded fund that tracks a basket of bank stocks, for $8 before May 15. The XLF, as the ETF is known, added 5.5 percent to $8.81 in New York, bringing its gain since March 6 to 43 percent. The May $8 puts fell 25 percent to 70 cents today.

    The difference between prices for bullish and bearish options, known to options traders as “skew,” and prices for credit-default swaps, which are used to protect against a default on a company’s debt, both show that investors expect the XLF to reverse gains, the strategist wrote.

    Put prices rose 35 percent relative to call prices this month, even as the XLF added almost 10 percent before today, the strategist said. That means investors are paying more to use options as protection against a decline at the same time as the ETF’s share price is rising.

    “This is an interesting reversal,” Wang wrote. “The higher the spread is, the more premium investors are placing on downside protection.”

    The XLF hasn’t closed below $8 since March 11. The basket of shares is still down 30 percent this year.

    Options are derivatives that give the right to buy or sell a security at a set price and date. Puts give the right to sell and calls convey the right to buy. Credit-default swaps, used to hedge against losses or to speculate on a company’s ability to repay its debt, pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.

    This "recommendation" is to be interpreted as a strong buy order...
  2. Let the "downgrade parade" begin! :cool:
  3. Citi is probably writing the PUT options as well....good luck!!
  4. piezoe


    Apparently Citi is selling Financial sector Puts!
  5. Love to believe it, but Citi is the biggest contra indicator out there.
  6. I dont beleive any of these fuck@@@ company
    I use them a a contra prediction
    When they say buy put,s you should buy call,s
    When oil was at $147 they said to buy oil it will go to $200
    Oil went to $34 and when oil was at $34 they said it is going to $15 Oil is now at $45/50
  7. didn't GS say something to the same effect? anyone have a link? this means go long financials.
  8. Wow! Explosive information. Looks like AIG is the middle man for funneling tax payer money into the Banks. You have to hand it to Geitner, your average citizen would never be able to follow this trail of government-insurance company-bank money laundering scheme. While politicians are crying about compensation, behind the scenes, the real crimes are being perpetuated.

    :mad: :mad:

    But given this information, the banks should post much improved earnings, so I would wait until after earnings to short them.
  9. Bull trap.

    Citigroup knows traders use their advice as a contra-indicator.

    So they will tell you to sell when they want you to buy.

    Therefore traders should be bearish, not bullish.
    #10     Apr 5, 2009