This Bear Call Spread Can Return 16% In Just Over A Month

Despite the broad rebound, the market is still in correction and Citigroup (C) didn’t participate in the rebound. Here is a bearish option strategy to use with C stock.


Citigroup stock already was in an established downtrend and fell 0.4% at the close yesterday. Traders that think this weakness in C stock might continue could look at a bear call spread. Here’s how you could set it up.

Bear Call Spread For C Stock

As a reminder, a bear call spread involves selling an out-of-the-money call and buying a further out-of-the-money call.

The strategy profits in a number of scenarios. If the stock trades lower, sideways, and even if it trades slightly higher. The key is it stays below the short call at expiry.

On C stock, a January expiry bear call spread could use the 67.50 strike as the short call and the 72.50 strike as the long call.

Yesterday, that spread was trading for around 70 cents per share.

This bear call spread achieves the maximum profit if C stock closes below 67.50 on Jan. 21. In that case, the entire spread would expire worthless, allowing the trader to keep the entire $70 option premium.

The maximum loss would occur if Citigroup stock closes above 72.50 on Jan. 21. Take the difference of the strike prices less the premium received and it comes to a maximum loss of $430.

That represents a 16.3% return on risk.

While some option trades have the risk of unlimited losses, a bear call spread is a risk-defined strategy. No matter how much C stock goes up, you always know the worst-case scenario in advance.

Managing The Position

A stop loss could be set if Citigroup stock trades above 67, or if the spread value rises from 70 cents to $1.70.

As this is a bearish position, traders that think C stock will move higher should not enter this trade.

There are a few reasons to be bearish here, considering some low ratings for Citigroup. It has a Composite Rating of 14, of a best-possible 99. And an EPS Rating of 89 and a  Relative Strength Rating of 28. Goldman Sachs (GS) is the No. 1 ranked stock in the group.

Please remember that options are risky, and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions. 

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ


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