In Wednesday trading, there were 1,165 unusually active options -- defined as those options expiring in seven days or more with Volume-to-Open Interest (Vol/OI) of 1.24 or higher -- with 679 calls and 486 puts. That’s a bullish indicator. 

However, what caught my eye as I examined yesterday’s unusual options activity for today’s commentary was Citigroup’s (C) four unusually active puts. It had no unusually active calls.

You’ve got three puts expiring next Friday and a fourth nearly 12 months from now. Intuitively, if you’re an income-focused investor, the three expiring on Aug. 15 are more appealing because the possibility of expiring out-of-the-money (OTM) is significantly higher. 

However, if you’re interested in owning stock in one of America’s biggest banks, the $82.50 strike expiring on June 18/2026 could provide a nice balance between income generation and efficient order execution. 

I’m not bullish or bearish on Citigroup. If I had to own a mega-cap bank stock, it would probably be JPMorgan Chase (JPM), primarily because Jamie Dimon is an excellent CEO. 

Before I discuss the four unusually active puts, I’ll consider whether Citigroup has any more room to gallop higher over the remainder of 2025 and into 2026. Up 65% in the past year, that might be a tough ask.

Are Bank Stocks Expensive?

As I said, Citigroup’s stock is up 65% in the past 12 months, with nearly half of this return generated since Jan. 1. JPMorgan’s up 45% over the past 12 months, with 21 percentage points of the return coming in 2025. 

The First Trust Nasdaq Bank ETF (FTXO), which owns 50 of America’s top banks -- Citigroup is the top weighting at 9.16% -- is up 23.5% over the past 12 months and just 3.9% year-to-date. That suggests investors have been more inclined to buy the larger banks rather than regional bank stocks. 

According to First Trust’s fact sheet, FTXO trades at 12.79 times earnings, 1.27 times book value, and 3.41 times sales. By comparison, Citigroup’s multiples, according to S&P Global Market Intelligence, are 15.21x, 0.86x, and 2.32x, respectively. Meanwhile, JPMorgan Chase’s three multiples are 17.95x, 2.40x, and 4.87x, respectively. 

What does that tell us? Relative to JPM at least, Citigroup stock isn’t ridiculously expensive despite the run it’s on. However, over the past decade between June 2015 and June 2025 (40 quarters), its P/E multiple has been higher than 15.21x on just five other occasions: June 2015, March 2021, June 2024, September 2024, and December 2024.

That works out to about 15% of the time that its P/E valuation has been so high. From this perspective, one could conclude that it’s fairly valued to overvalued at the moment. 

With that in mind, let’s move on to the four unusually active puts.

The Busiest of Them All

The Aug. 15 $87 put had a Vol/OI ratio yesterday of 130.79, the highest among puts, and the second-highest overall. Of the 25,504 in volume, 20,000 was for one trade at 10:24 in the morning. That’s 97.5% of the overall volume. A big fish was biting.

So, the institution or high net worth investor that sold the 20,000 put contracts generated $560,000 in premium income that they get to pocket if the share price doesn’t trade below $87 by next Friday. 

Looking at Barchart’s Naked Put page, the probability of this happening is over 90%, virtually a sure thing, and a 9.5% annualized return. That’s better than a T-Bill. If you’re risk-averse, this is the best of three for income. 

The Other Two Puts Expiring Next Friday

So, the profit probability for the $91 put is 72.48%, and 66.59% for the $92 put. While the risk moves up, so too does the reward, with annualized returns of 38.9% and 55.2%, respectively.

If you’re reasonably risk-tolerant and don’t mind buying 100 shares at $91, I prefer the lower strike price for a slightly higher margin of safety.  

The Outlier of the Bunch

As I said in the introduction, the $82.50 strike expiring on June 18/2026 provides a nice balance between income generation and efficient order execution. 

From an income perspective, the annualized return based on the $4.85 bid price would be 7.12% [$4.85 bid price / ($82.50 strike - $4.85 bid price) * 365 / 316 DTE].

Now, 7.12% probably doesn’t seem like a lot given the lengthy number of days to expiration (DTE). There are two reasons why the return’s not as bad as it might appear.

First, if you’re bullish about the future share price of Citigroup, and you like it at $92 and change, you’ll like it even more at $77.65 [$82.50 strike price - $4.85 premium]. It hasn’t traded this low since mid-June. 

Secondly, you can always close out the short put should the share price drop into the mid-$80s. You would pay the prevailing ask price at the time. 

Based on the $92.23 closing price from Wednesday, a theoretical share price of $85 at the time you close out the short position, and a delta of -0.2758, the ask price at the time would be approximately $7.04 [$92.23 share price - $85 theoretical share price * -0.2758 delta + $5.05 yesterday’s ask price], creating a loss of $2.19 [$7.04 - $4.85 premium].

For many, the idea of holding a short put and keeping the position open for nearly a year is probably too long. Most options traders opt for DTEs of 30-45 days, where the risk/reward is more palatable, and the premium income is locked in sooner.

Something to ponder.