Citigroup (C, $6.27, up $2.50) got its wish over the weekend and we got ours. News that the government will give $20 billion to the struggling bank and guarantee $300 billion in troubled mortgage assets has the stock rolling today. In exchange, the government gets $27 billion in Citigroup preferred stock while the taxpayer once again gets the wrong end of the stick.
I spent the majority of Friday watching the action in Citigroup and talked about the December 5 calls (CLP, $2.30, up $1.36) which closed under a $1 on Friday. The calls have traded to a high of $2.50 today. Obviously, if you got into these calls then you don’t need me to tell you to close half the position.
The financial stocks are having a stellar day as you might expect but don’t get caught up in the rally. There are likely more bailouts to come with other banks and I wouldn’t be surprised if Citigroup hits the coffee can again down the road. Remember, Citigroup got $25 billion last month and now another $20 billion. Meanwhile, the auto companies must be scratching their heads and wondering what the heck is going on. They pretty much left Congress with a brown nose and no cash.
Truth is, the banks will get money before the auto companies although a collapse of one or more of the auto makers could have major negative implications on the economy. However, a Citigroup bankruptcy would have an even greater effect on an already fragile financial system.
Rick Rouse
Rick@OptionsMentoring.com
