Citigroup shares dropped 2% on rate hike fears, but path-dependent analysis suggests the 135/140 bull call spread may be undervalued by the market.
The article argues Citigroup's post-Fed selloff is overdone and a path-dependent options analysis suggests the 135/140 bull call spread may be mispriced, pointing to possible upside to $140.
Citigroup shares slipped over 2% following a surprise Federal Reserve rate hike, which sparked concerns over deposit beta and net interest margin compression. While standard options models suggest a bearish outlook for the 135/140 bull call spread, alternative path-dependent analysis indicates the market may be mispricing the stock's upside potential.
The stock declined due to concerns that a rate hike would force the bank to raise interest rates on deposits rapidly to remain competitive, potentially compressing net interest margins.