Shares in Citigroup Inc. have maintained a post-close slide of around $2.00 in response to the Fed’s denial of the lender’s attempts to better reward shareholders via its capital plans. While dividends form part of the DNA of an option’s premium, given the minimal existing penny paid by Citigroup, market-makers hardly priced in much of a bump in the event that Citi was successful in hurdling the stress test.
And so as shares cling on to that 4% slide on Thursday, option traders are leaning lower on implied volatility as displayed in the following chart. Vols are lower by 2.0 points to 22.5% on at-the-money strikes and while that might not sound like much, it’s enough to sink the premium on at-the-money straddles – the combined value of ATM put and call premiums – from $2.93 to $2.56. Overall option volume on Citigroup by 11:30 am ET stands at 167,000 contracts behind individual names Facebook and Bank of America Corp. with 286,000 and 195,000 contracts respectively.
Chart shows how the implied volatility slips.