Option Market Leans on Citi Volatility – (C)

Shares in Citigroup Inc. (C) have maintained a post-close slide of around $2.00 in response to the Fed’s denial of the lender’s attempts to better reward shareholders via its capital plans. While dividends form part of the DNA of an option’s premium, given the minimal existing penny paid by Citigroup, market-makers hardly priced in much of a bump in the event that Citi was successful in hurdling the stress test. And so as shares cling on to that 4% slide on Thursday, option traders are leaning lower on implied volatility as displayed in the following chart. Vols are lower by 2.0 points to 22.5% on at-the-money strikes and while that might not sound like much, it’s enough to sink the premium on at-the-money straddles – the combined value of ATM put and call premiums – from $2.93 to $2.56. Overall option volume on Citigroup by 11:30 am ET stands at 167,000 contracts behind individual names Facebook (FB) and Bank of America Corp. (BAC) with 286,000 and 195,000 contracts respectively.

Chart – implied volatility slips

(click to enlarge)

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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