2nd Update: GS/MS Trade: Conspiracy Theory Trade: ECB Creates Epic Thanksgiving Short Squeeze

by Dan December 1, 2011 10:28 am • Commentary

2nd Update Dec 1st at 11:33am:

MS closed the second half of this dec 15/16 call spread at .26, so at an average of .305 for a total profit of .135 on the trade.

Update Dec 1st 2011 at 10:30am:

MS: since buying the Dec  15/16 Call Spread f0r .17 last Wednesday for .17, the stock has rallied almost 13%….You guys know the drill, I am now going to sell half of my position for .35 double the original purchase price and let the other half ride for now.

GS: Since buying the Dec 100/105 call spread last Wednesday for .65 the stock is up about 8% and I am going to sell this position at 1.00 for a .35 gain.

Also as a punt I paid .22 for the GS Dec2nd weekly 100 puts for .22, I am going to close these at .17 for a .05 loss.

Basically I think the rally is a bit manufactured and I want to take some profits on some short term long positions that I was in for a little bounce and look for a good opportunity to get short!



Original Post Nov 23rd, 2011:GS/MS Trade: Conspiracy Theory Trade: ECB Creates Epic Thanksgiving Short Squeeze

With MS at (13.14) I just bought the Dec(regular) 15/16 Call Spread f0r .17

Breakeven: 15.17, max gain 16 or higher make full .83

Also Bought the GS (88.50) Dec17 regular 100/105 call spread for .65 

Ok here is a little conspiracy theory that I just dreamed up…..if the Europeans are close to some form of ECB intervention to backstop Euro-zone Nation’s Sovereign debt could you think of a better time to announce it than tomorrow while U.S. markets are closed. With only a 1/2 of a trading day on Friday they could create a short squeeze of epic proportion that would likely last for a week.  If the ECB made some definitive statement that they would be the “lender of last resort” than you would see a bank rally that fits the thesis of the indivdual buying all of those upside calls in Dec banks stocks (below).

One way to play would be to buy weekly calls in some of the banks that have been hit the hardest. Here’s the trade:

TRADE: GS ($88.25) Bought Dec2 (weekly) 100 Calls for .22

Break-Even Next Friday: 100.22 or higher.

OR You Could buy Nov25th weekly calls in anything!  This is obviously risky and those are expensive 1/2 day options that if you get nothing will be worthless by about 10am Friday morning.

This is a lotto ticket type trade and not for everyone. This is not the type of trade you want to risk much capital on as the likelihood is that you will lose all that premium.





Buyer of Upside Calls in Bank Stocks, Betting on ECB Intervention?

2:44 PM EST – NOVEMBER 23, 2011 BY  (EDIT)

In Goldman Sachs (GS 88.22 ↓-1.32%), a buyer of 8k December 110 calls for .30

In Citibank (C 23.60 ↓-3.52%), a buyer of 50k December 29 calls for .23

In JP Morgan Chase (JPM 28.60 ↓-2.75%), a buyer of 75k December 35 calls for an average of .135

In Morgan Stanley (MS 13.09 ↓-3.18%), a buyer of 25k December 16 calls for .22

This to me seems like a play that there will be some sort of grand intervention by the ECB in the coming weeks. If that were to occur, the bank stocks would be the place to be for the biggest move higher on the news. Earlier today the Germans had a fairly unsuccessful bond auction. The thinking has been that the Germans are the ones holding back the ECB until the the peripheral countries finalize their austerity measures. The reasoning behind that is the longer the Germans wait the better terms they will get on these credit writedowns. The fact that the bond madness is coming inside their borders now could speed up this entire process. Something to keep an eye on.