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For investors who want some exposure to the upside in Citigroup Inc. (NYSE: C) shares, but who believe that it will be a slow grind higher, one alternative to the covered call is a cash-secured put. This June strategy collects $32 per contract in premium and would give an effective cost to buy the shares of $3.68 if assigned on the short put. If C shares are trading higher than $4 at expiration and you are not assigned before then, you keep the entire premium.
C Cash-Secured Put Trade Details:
C shares are trading at $4.04, relatively unchanged on the day.
Cash-Secured Put –
Securing the sold put with cash means the capital is available to buy the shares if assigned. At this point, you’ll have purchased C shares at an effective price of $3.68, or roughly 9% less than they are currently priced.
Open a free virtual trading account for a visual of the risk/reward dynamics of this cash-secured put.
Profit/Loss Details:
Maximum potential profit: $0.32 per contract (the premium collected) minus commissions. (This profit is for the short put option only and may change if the investor opts to buy the stock at $3.68).
Maximum risk: $3.68 (the strike price minus the premium collected). Return on risk for this trade is 4%.
Breakeven: $3.68 (the strike price minus the premium collected).
Remember, trading Ideas are generated by the ONN Idea Generating Platform as a starting point for people to begin their own research. Trading ideas are not intended as trading or investment advice or recommendations that any particular security or strategy may be suitable for any specific person. You are solely responsible for your investment decisions, but we hope that some of these ideas will give you a starting point as you look for strategies to employ.
For more on C:
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