Why I Own Citigroup Warrants

Austin Smith, The Motley Fool

The following video is part of our "Motley Fool Conversations" series, in which consumer goods editor and analyst Austin Smith discusses topics across the investing world.

Despite a big run up so far in 2012, the banking sector is looking incredibly cheap today. Price to book values are still about one-quarter their historic levels. The nice thing about warrants is that, like an option, they give you the choice to buy a stock at a predetermined price in the future. In the case of Citigroup warrants, that price is $10.61 by Dec. 31, 2018. As a risk-averse investor, I like the idea of paying a small amount of money today to buy higher-priced Citigroup shares in the future. While banking still looks cheap, the sector's balance sheets could still hold share price-destroying land mines in the future.

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At the time thisarticle was published Austin Smith owns shares of Wells Fargo & Company and warrants on Citigroup. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase & Co., and Wells Fargo & Company. The Motley Fool has the following options: short APR 2012 $21.00 puts on Wells Fargo & Company, short APR 2012 $29.00 calls on Wells Fargo & Company, short OCT 2012 $33.00 puts on Wells Fargo & Company, and short OCT 2012 $36.00 calls on Wells Fargo & Company.Motley Fool newsletter services recommendWells Fargo & Company. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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