Seidman Investment Portfolio Organization


Company: Citigroup Inc.
Analyst: Will Hibler
Sector: Financials (NYSE:C)

Winter 2010 Buy Summary (Long Call Options) By: Will Hibler

Citigroup is a major American financial services company comprised of two units: Citicorp for its retail and investment banking business, and Citi Holdings for its brokerage and asset management.

In light of the improving conditions in the financial sector, IPO decided to buy Jan 2012 Citigroup call options at a $5.00 strike price. By "going long" the call options, we are expecting the share price of Citi to rise until the date of maturity. If the share prices do rise past the strike price, we have the right, but not the obligation, to purchase Citi shares at $5.00. The difference between the market price at the time and the strike price would be profit on our investment.

Citigroup shares have been greatly battered since the beginning of the 2007 financial crisis. Reasons for this include exposure to subprime real estate, illiquid assets, and assets of unknown value. As the financial system became increasingly illiquid, the American government became concerned that a Citigroup bankruptcy would have serious national consequences, and assigned to it a massive TARP rescue package.

Since the bailout, Citigroup has greatly reduced its balance sheet size, stripping it of many high-risk assets and accounts. At the same time, Citi management has been reorganized, and has redefined itself around core activities. The divestiture of their non-core assets has generated much needed cash for the firm, and with it, combined with secondary share offerings, Citi has repaid their TARP debt.

Citigroup announced surprisingly strong earnings for Q1 2010, and although some headwinds remain for the firm, as well as for the broader U.S. economy, many investors, including IPO, are forecasting that the greatly depressed share prices have profitable upside potential.

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