Collect Lower-Risk Income on Citigroup

The big bank has a plan

The market sold off yesterday as investors digested the rising COVID-19 infection rates in some states, but it started to turn around before the close. This morning, futures are pointing higher, and since I’m not going to go against the tape, I’m recommending a bullish trade on Citigroup, Inc. (NYSE:C).

C was one of a few stocks that led the market higher yesterday, and with the momentum continuing today, I think it’s an excellent time for a bullish put write.

Citigroup Looks to the Future

One of the reasons for the turnaround yesterday was the Federal Reserve’s announcement that it would start buying corporate bonds directly,

The central bank has been buying bond exchange-traded funds (ETFs), but now it is ready to jump into directly purchasing bonds from companies.

The Fed’s support has been critical over the last few months, and yesterday’s announcement told investors it was safe to push the market higher.

The bullish boom continues this morning because the White House announced an upcoming $1 trillion infrastructure proposal and the Commerce Department reported a 17.7% increase in retail sales for May.

The bullishness in the market may not have much to do with C’s performance directly, but the company’s plans to expand business lending in the near future suddenly seems a lot more feasible as the economy shows its resilience.

Emerging Support

In the chart below, you can see that C started an upward channel in March. Its up-trending resistance kept it bounded for most of April and May, but just over a week ago, it broke out of that channel.

Daily Chart of the Citigroup, Inc. (C) — Chart Source: TradingView

C has since fallen, and it can go several places from here. The stock could drop more and hit up-trending support, or it could hit its 50-day moving average and bounce higher. It may even start a new channel higher with slightly different trends higher.

C’s chart makes it clear that the stock is trending higher though, and I expect it to keep going.

Because volatility is still high — remember, there is still a lot of headline risk from the pandemic — traders can sell farther out-of-the-money options and still collect a decent premium. Because I don’t think its good to take on too much risk in this market, I’m setting the strike price at $35, well below C’s current support levels.

Sell to open the C July 17th $35 put at about $0.38.

Note: Be sure you are opening the monthly C options that expire on Friday, July 17, 2020.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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