Free money from Citi share+option combo setup appeared again today !

Was out for 2 weeks. No major trades over that period.

Today most banks share price dropped while Citi share price increased.

Citi is the largest shorted share in the open market, about 1.2 billion shares shorted. It is about 4 times the 2nd largest shorted share SPY (about 300 million shares shorted). Citi price has been on the increase over the past 2 weeks, so likely most of the pure shorties (no option protections) are rushing to buy in to cover their short positions. So C will likely to continue to rise this week until a few days after Citi announce their earnings this Friday.


The free money from Citi scenario appeared again today! Tried to setup a 5,000 positions on that combo to check out margin requirement and plan to increase it to much larger quantity after that.

Steps are :
1. Short Sell C at market price $4.41 (collect money)
2. Sell June PUT option strike price $5 for $2.30 (collect money)
3. Buy June CALL option strike price $5 for $0.81 (pay money)
Total net money collect is $5.90 ($4.41 + $2.30 - $0.81).
The option setup enable us to buy C at $5.00 by expiry June.
So net free money per unit is $0.90 (i.e. for each share shorted + option positions created).

Surprised to find that the queue for Short Sell at Market Price did not get executed. It normally happen instantly for Market Price orders.

Went in to check my Broker website for Shares Available to short and found that there is non available to loan to short for C (on 20-Mar-09 there were 2 million shares availalbe !).

Sigh..... gone ahead and cancel the Short Sell order for C. Checked out a few other bank shares for similar opportunity but none have such a big price divergence situation.