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Dark Citi: Short Interest Spikes After Earnings


Although the market's reaction to Citigroup's bad but better-than-expected earnings was muted, dark pool short interest in the stock spiked on Friday.

As Seeking Alpha contributor John Mason noted, the jury is still out on whether Citi's turnaround plan is on target.

For Citi longs still bullish but concerned about the uncertainty, we present two ways of hedging the stock over the next several months.

Citi Flat After Earnings, But Dark Pool Short Interest Spikes

The market's reaction to Citigroup's (NYSE:C) earnings release on Friday was a bit anticlimactic. As Seeking Alpha contributor John M. Mason summarized it, Citi's bad quarter (27% year-over-year drop in profits and 11% drop in revenues) beat Wall Street's subdued expectations, but the jury is still out on CEO Michael Corbat's turnaround plan. After the stock closed down fractionally on the day, it was still up over 28% from its February low.

Although the market's reaction to Citi's earnings was muted, dark pool short interest in the stock spiked after earnings.

Readers of our previous article on Facebook (NASDAQ:FB) ("Facebook: Proceed With Caution") will be familiar with dark pools, but for those unfamiliar with the term, these are private exchanges where institutions trade shares without the transparency of public markets. That enables them to place large block trades away from front-runners and other predatory traders on public exchanges. Seeking Alpha contributor SqueezeMetrics elaborated on how dark pools work, and why investors should pay attention to them, in an article a couple of months ago, "Seeking Alpha In The Dark".

According to SqueezeMetrics, dark pool shorting volume (the red areas in the chart below) spiked 3.3x after Citi's earnings on Friday, suggesting institutional investors were less sanguine about the company's prospects than the market overall.

Hedging Your Bets On Citi

If you're long Citi and are still bullish on it, but you want to limit your downside risk in light of the spike in dark pool shorting and the...