2nd Update: Taking A Whack at the Bank Stock Piñata: Buying XLF Oct Put Flys

by Dan October 11, 2011 9:52 am • Commentary

2nd UPDATE Oct 4, 2011: With the stock at 12.30 I am adding back the half of the position that I took off last week.  I want to look to make what I think is a cheap shot in front of JPM Q3 earnings on 10/13,  Citi and WFC on 10/17 and BAC and GS on 10/18. 

ALL up in the last week: BAC is up 20%, GS is up 12%, JPM up 14%, WFC up 14%  and Citi up 22%/   Now granted most of these stocks are still down about 40% ytd on average, but he higher they go from their lows last week the greater potential for disappointment following earnings….this is not a bet I won’t to place a great deal of capital to….but i like the potential risk/reward if we go back into the crapper.

Vs the stock at 12.30 I just paid .15 for the half that I sold last week.

UPDATE Oct 4, 2011:

Selling half the Put Fly at .22, paid .12

Original Post Sept 8, 2011:

Taking A Whack at the Bank Stock Piñata: Buying XLF Oct Put Flys

The XLF is up about 8% off the lows last month…..Readers of this site know that I think we are likely to make lower lows before we bottom……

I want to make a broad short term bearish play on the banks while defining my risk and looking for a low premium way to do this….

I want to isolate the previous 3 lows of around $12.00 as a level where if it sells off and touches that level again, it is likely to break down in a big way from there.  

TRADE: XLF ($12.82) Buy OCT 12/11/10 Put Fly for .12

-Buy 1 XLF Oct 12 Put for .46

-Sell 2 XLF Oct 11 Puts for a total of .48

-Buy 1 XLF Oct 10 for .14

Break-Even On Oct Expiration:

Profits: btwn 11.88 and 11.00  make up to .88 at 11.00 (down 14%) make full .88 or 7x your money. Btwn 11.00 and 10.12 profit starts to trail off.

Losses: btwn 11.88 and 12 lose up to .12, above 12.00 lose .12, btwn 10.12 and 10 lose up to .12 and below 10 lose all .12.