Citicorp does not look like much of a blue-chip company to most investors these days, but the Chicago Board Options Exchange thinks it is.
In fact, the CBOE likes citicorp so much that it chose to list a new type of Citicorp option on the exchange over the objections of its own advisory board.
The board's decision to override its advisers is a sign that Citicorp, though bloodied, still has clout with some investors.
Differences arose two weeks ago and centered on whether adding citicorp would bolster or weaken credibility for Long-Term Equity Anticipation Securities (LEAPs), and options product that can be purchased more than one year in advance of settlement.
Minimum Price Specified
Guidelines for long-term options preclude listings unless the underlying stock trades for more than $20 a share. Citicorp was trading on Friday at $13.75. The CBOE and the three other exchanges that trade long-term options adhere to the guidelines.
Exchange executives reasoned that because of Citicorp's "well-known name and broadly held nature, it merited an exception," according to John Roberts, the exchange's first vice president in charge of marketing. It is the only exception granted since LEAPs began trading in October 1990.
"What we are trying to do is make LEAPs a class of product associated with more conservative stocks and more conservative investment strategies than is typically associated with options," he said, noting that Citicorp still has appropriate blue chip credentials.
Different View by Advisers
That argument failed to sway the 31-member advisory board, which maintained that Citicorp's stock price was too low to justify the listing of its long-term options.
"You go for exceptions when you're having trouble finding names," said Michael Schwartz, chairman of the advisory board and chief options strategist at Oppenheimer & Co. He implied that there were many other stocks besides Citicorp that would be more suitable.
Mr. Schwartz said the options industry was suffering already from of an image problem among many conservative investors, who view options as risky investments. A minimum-price guideline was intended by the exchange to counter that perception.
Low Volume Is Noted
In his view, listing Citicorp is a reaction to depressed trading
A Lower threshold
For the Biggest Bank
Selected long-term options listed on the Chicago Board Options Exchange Underlying stock price (*)Citicorp $13.75Texas $28.125InstrumentsGeneral Motors $38.25BankAmerica $40.75K mart $42.125Exxon $59.625 (*) As of noon on Oct. 4 Sources: DB Technology Inc., REuters
volume, forcing the exchange to scramble to improve profits.
He said also that the low volume in the Citicorp options, averaging only 50 contracts a day, is not large enough to be worth bending the rules.
The exchange maintains, however, that Citicorp's long-term options are performing well, in line with second installment of its long-term options that began trading Sept. 23.
"It's not like this is some start-up company that has never traded above $10," Mr. Roberts said.
The exchange offers three long-term put and three long-term call options on Citicorp. All expire in January 1993. Normal options are for less than a year.
Twenty-five long-term options trade on the exchange, including many of the stocks in the Dow. BankAmerica is the only other banking company with a long-term option.