Citi's guide to trading the debt ceiling: Beware companies with high revenues from U.S. government

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As the fight over the debt ceiling and talk of spending cuts heat up, these stocks could be among those hardest hit, Citi says.

Investors looking to trade the showdown over the U.S. debt ceiling should focus on stocks that are tied most to government spending, according to Citigroup. Lawmakers have been trying to find a way to raise the debt ceiling so the government can pay its bills on time. On Sunday, Treasury Secretary Janet Yellen warned that failing to raise the debt ceiling will cause a " steep economic downturn .

"Our bias is to consider classic hedges that can be quickly reupped or unwound rather than a two pronged 'sell the concern, buy the Resolution,'" he added. Chronert then added a volatility screen to his list of direct- and indirect-exposure stocks. He looked at the current options pricing setup and found 19 names with at least 10,000 open contracts where 30-day and 90-day at-the-money implied volatility is below that of the SPDR S & P 500 ETF Trust .

 

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