How to Use a Cash-Secured Put Ahead of Citigroup's Earnings

As Citigroup (C) prepares to report second-quarter 2025 earnings on July 15, investors are bracing for volatility. The bank's stock has fluctuated between $53.51 and $88.83 over the past year, reflecting its sensitivity to macroeconomic shifts and strategic moves. For those bullish on Citigroup's long-term prospects—driven by CEO Jane Fraser's restructuring and cost-cutting initiatives—the earnings event presents an opportunity to capitalize on near-term uncertainty using a cash-secured put strategy.

Strategic Overview: Why a Cash-Secured Put?

A cash-secured put involves selling a put option on a stock you'd like to own at a strike price below the current market price. The strategy allows you to:
1. Collect premium income upfront.
2. Secure a lower entry price if the stock drops below the strike (and you're assigned shares).
3. Avoid downside risk beyond your predetermined price.

Citigroup's upcoming earnings offer a prime setup. Analysts project EPS of $1.63 for Q2, a 7.2% increase from last year's $1.52. While a positive outcome could lift shares, a miss or guidance disappointment might trigger a sell-off. The implied volatility for Citigroup's July 2025 options—currently at 143.75%—hints at elevated expectations for post-earnings swings.

Current Valuation Context: A Bullish Foundation

Citigroup's stock trades at $87.56, near its 12-month high. Despite this, analysts maintain a “Moderate Buy” rating, with an average 12-month price target of $85.43. While the target is slightly below current levels, it reflects skepticism around near-term risks.

The bank's restructuring—phasing out non-core markets and focusing on wealth management—has stabilized its balance sheet. Even Berkshire Hathaway's exit earlier this year (a $2.1 billion reduction in financials) can't overshadow the structural improvements. Analysts now see Citigroup's shares as a “floor-supported” play, especially if earnings confirm revenue growth in high-margin segments.

The Cash-Secured Put in Action

While the June 17 $50 strike put cited in historical examples is no longer available (the lowest July 2025 strike is $55), the strategy remains applicable. Let's use the July $55 put as a current example:

Key Metrics (as of July 7, 2025):

• Current Stock Price: $87.56
• Strike Price: $55.00
• Put Premium Received: $0.01 (hypothetical, based on quoted data)

Break-Even and Profit Scenarios:

• Break-Even Price: Strike Price – Premium = $55.00 – $0.01 = $54.99
• Max Profit: Premium Received = $0.01 per share (if C closes above $55 on expiration).
• Max Loss: Strike Price – Current Price + Premium = ($55.00 – $87.56) + $0.01 = -$32.55 per share (if assigned shares at $55).

Contingency Plan:

If assigned shares at $55, your cost basis becomes $55.00, significantly below today's price. This aligns with Citigroup's 12-month low of $53.51, suggesting the $55 strike is deep out-of-the-money and unlikely to be triggered unless earnings produce a catastrophic drop.

Risk Management: Key Considerations

1. Timing: Sell the put before earnings (July 15) to capture volatility-driven premiums.
2. Position Sizing: Limit exposure to 5% of your portfolio to avoid catastrophic loss scenarios.
3. Alternative Strategies: If volatility drops, consider rolling the position into a lower-strike put or exiting early.

Conclusion: A Calculated Bet on Citigroup's Resilience

Citigroup's earnings are a pivotal moment for investors. The cash-secured put strategy offers a disciplined way to profit from volatility while securing a low-cost entry. Even if the stock remains above $55, the premium cushions your returns. If assigned, you'll own shares at a price that analysts see as fundamentally undervalued.

As Citigroup continues to streamline operations and capitalize on wealth management growth, this strategy positions you to benefit from both short-term swings and long-term value creation.

Final Note: Always monitor implied volatility and earnings call sentiment. If post-earnings volatility spikes, consider closing the position early to lock in gains or adjust based on new data.