Citigroup reported their Q1 2024 earnings seventeen days ago at $1.58 per share which exceeded analysts' estimates by $.35 per share and their current P/E Ratio is only 6.1. A common valuation metric for banks is price-to-book-value. Citi has by far the lowest current value at only 0.6 which is substantially lower than its next nearest competitor (Bank of America at 1.1) in the mega-cap banking industry. During her relatively short 3-year term at Citi, CEO Jane Fraser is providing strong leadership and is committed to continuing to divest losing businesses and improving key overall bank metrics. The average target price of the analysts following Citigroup is $66.30 (+7.0% above today's purchase price).
Most mid- to large-cap companies in the Financial Sector provide only modest growth prospects, but they often pay 2.0%+ annual dividend yields. Consequently, the Covered Calls Advisor is targeting opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions. Citi has announced that their next ex-dividend date will be 5/03/2024 and at $.53 per share which is a 3.4% annual dividend yield at its current price. This new May 10th Citigroup Covered Calls position continues the Dividend Capture Strategy of often selling
in-the-money monthly Covered Calls for one of the six U.S. mega-cap banks (Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley) during each options expiration
month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations; Citigroup, Wells Fargo, and Morgan Stanley for Feb, May, Aug, and Nov options expirations; and Bank of America and Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).
Two potential return-on-investment results are: (a) +0.4% absolute return (equivalent to +39.7% annualized return for the next 4 days) if the stock is assigned early [on the last trading day prior to the 5/3/2024 ex-dividend date]; OR (b) +1.3% absolute return (equivalent to +43.9% annualized return over the next 11 days) if the stock is assigned on the May 10th, 2024 options expiration date.
Citigroup Inc. (C) -- New Covered Calls Position
The transactions were:
4/29/2024 Bought 500 Citigroup shares @ $61.99
4/29/2024 Sold 5 Citigroup 5/10/2024 $60.00 Call options @ $2.25 per share.
Note: the Implied Volatility of these Call options was 19.4 when this position was established.
5/3/2024 Upcoming quarterly ex-dividend of $.53 per share
Two possible overall performance results (including commissions) for this Citigroup Covered Calls position are as follows:
Covered Calls Net Investment: $29,873.35
= ($61.99 - $2.25) * 500 shares + $3.35 commission
Net Profit Components:
(a) Options Income: +$1,125.00
= ($2.25 * 500 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at the May 10th, 2024 expiration): +$265.00
= ($.53 dividend per share x 500 shares)
(c) Capital Appreciation (If Citigroup shares assigned early): -$995.00
+($60.00 strike price - $61.99 stock purchase cost) * 500 shares; or
(c) Capital Appreciation (If Citi shares assigned at the $60.00 strike price at options expiration): -$995.00 = ($60.00- $61.99) * 500 shares
Either outcome would provide a good return-on-investment result. These returns will be achieved as long as the stock is above the $60.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $59.21 ($61.99 -$2.25 -$.53) provides 4.5% downside protection below today's stock purchase price.
